SUMMARY OF BOARD DECISIONS
Summary of Board decisions are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions are included in an Exposure Draft for formal comment only after a formal written ballot. Decisions in an Exposure Draft may be (and often are) changed in redeliberations based on information provided to the Board in comment letters, at public roundtable discussions, and through other communication channels. Decisions become final only after a formal written ballot to issue an Accounting Standards Update.
January 27, 2010 Board Meeting
Financial statement presentation. At its meeting today, the Board finished discussing the remaining issues from its January 19, 2010 joint meeting with the IASB. Specifically, the Board addressed:
- Remaining issues related to segment disclosures
- Financial services entity issues
- Costs and benefits.
Issues related to segment disclosures
At their joint meeting in January, the FASB and the IASB made the following decisions related to segment disclosures. They decided that the Exposure Draft:
- Will specify that an entity with more than one reportable segment must present its disaggregated by-nature information in its segment note and must also include its by-function information in the same note
- Will require an entity that presents by-nature income and expense information in its segment note to classify items consistently between the statement of comprehensive income and the segment note
- Will require an entity to present information about its operating segment activities that do not meet the criteria to be presented as a reportable segment separately from information about its corporate activities
- Will require an entity to reconcile the operating profit (loss) of its reportable segments to its consolidated operating profit presented on the statement of comprehensive income.
At its meeting today, the Board decided that an entity would also be required to disclose for each reportable segment:
- A measure of operating cash flow. An entity would also be required to reconcile the sum of operating cash flows of its reportable segments to operating cash flow as reported in the statement of cash flows.
- A measure of liabilities if that amount is reported to the chief operating decision maker
- A measure of operating assets and a measure of operating liabilities.
Financial services entity issues
The Board considered whether and to what extent the Exposure Draft on financial statement presentation should be applied by a financial services entity. The Board agreed that many of its tentative decisions to change proposals in the Discussion Paper address the concerns expressed by financial services entities. The only tentative decision that the Board specifically discussed that related to a financial services entity is the requirement to present a direct method statement of cash flows.
The Board discussed different ways in which a financial services entity might present cash flow information in the financial statements. The Board asked the staff to provide more information about how an entity might report cash flows related to deposit taking activities in a direct method statement of cash flows.
Costs and benefits
The Board discussed a summary of the information received about the overall costs of the proposed presentation model. In prior meetings, the Boards have discussed both the costs and the benefits of individual aspects of the proposed presentation model. The Boards have made a number of tentative decisions in deliberations that should reduce the costs of implementing the proposed model and retain its expected benefits.
The Board asked the staff to discuss the costs of implementing the proposed presentation model with enterprise software providers.
Statement 167 implementation. The Board discussed comments received on Proposed Accounting Standards Update, Consolidation (Topic 810): Amendments to Statement 167 for Certain Investment Funds. The Board’s redeliberations focused on the following areas:
- Requirements for an entity to qualify for the deferral of FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R)
- Accounting issues relating to those entities that qualify for the deferral in the proposed Update
- Clarification of the related-party guidance in paragraph B22 of Statement 167
- Clarification on whether a quantitative test should be the sole basis of the analysis in paragraph B22 for determining whether variability associated with a fee arrangement is more than insignificant.
Requirements to qualify for the deferral of Statement 167
The Board affirmed its decision in the proposed Update that the requirements as to whether an entity qualifies for the deferral should be based on the nature and characteristics of the entity. Accordingly, an entity with all of the attributes specified in paragraph 946-10-15-2(a) through (d) may qualify for the deferral. In addition, the Board affirmed that certain entities for which it is industry practice to apply guidance consistent with the measurement principles in Topic 946 (Financial Services―Investment Companies) for financial reporting purposes may also qualify for the deferral. The Board asserted that these entities would also be required to meet the other requirements in the proposed Update to qualify for the deferral.
The Board decided that additional guidance is not necessary to clarify which entities are considered asset-backed financing entities and securitization entities. Furthermore, the Board affirmed that entities with multiple levels of subordinated investors, for example, a collateralized debt obligation or collateralized loan obligation for which the primary purpose of the equity structure is to provide credit enhancement to senior interest holders, are considered asset-backed financing entities.
The Board affirmed that in situations in which a general partner has an obligation to fund losses of a limited partnership (including situations in which the obligation is legally specified) that could potentially be significant to the entity, the entity should not qualify for the deferral. However, interests in a limited partnership that are structured to limit the reporting entity’s exposure to the obligations of the partnership may qualify for the deferral.
The Board also agreed that an attorney-in-fact for a reciprocal insurance exchange should be evaluated based on the conditions provided in the proposed Update to determine if it qualifies for the deferral.
Accounting issues relating to those entities that qualify for the deferral in the proposed Update
The Board decided that entities that initially qualify for the deferral but subsequently no longer qualify should not be allowed to apply the transition guidance for the adoption of Statement 167. Accordingly, if the reporting entity is required to subsequently consolidate an entity as a result of changes in facts and circumstances, it must apply the initial measurement guidance in Statement 167.
The Board also decided to include additional guidance to clarify its intent on which disclosure requirements are applicable for those entities that qualify for the deferral.
Related party guidance in paragraph B22
The Board affirmed that the proposed Update should be modified to clarify that when performing the analysis under paragraph B22 of Statement 167, a related party’s interest should be considered as if it were the reporting entity’s own interest.
The Board also decided that employee benefit plans should not be considered related parties in the paragraph B22 analysis unless they are used to circumvent the guidance in Statement 167. The Board noted that the effect of other related parties in the paragraph B22 assessment will be discussed further within the joint consolidations project.
Applicability of a quantitative test in paragraph B22
The Board decided that the staff should clarify that a quantitative analysis should not be the sole determinant in the assessment of an entity’s exposure to variability when evaluating both conditions (c) and (f) in paragraph B22. The Board also agreed not to provide examples about the factors that should be considered when performing a qualitative analysis.
The Board directed the staff to draft an Accounting Standards Update for vote by written ballot.
The Board discussed contractual features that allow policyholders to take actions that change the amount, timing, uncertainty, or nature of benefits that they will receive (policyholder options). Examples of such features or options include:
- Options to renew or cancel (with or without a surrender value) a contract
- Options to terminate or suspend the payment of contract premiums
- Options to increase or decrease the amount of coverage (with or without further underwriting procedures to assess the risks of any increased coverage).
The Board tentatively decided that an entity should consider policyholder options, as well as options, forwards, and guarantees related to existing coverage, in the measurement of the insurance contract on a look-through basis using the expected value of future cash flows related to the features (to the extent those features are within the boundary of the existing contract). The staff will develop material to identify the boundary of an existing contract for discussion at a future meeting.
The Board asked the staff to do additional analysis as to whether an option pricing model can be used to measure the contract. The staff intends to provide that information to the Board at a future meeting as part of a discussion about risk margins.
The Board tentatively decided that no deposit floor should be used when measuring an insurance contract (however, scenarios including policyholder withdrawals would be included in estimating the expected contractual cash flows).