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.

November 14, 2012 FASB Board Meeting

Presentation of comprehensive income: reclassification out of accumulated other comprehensive income. The Board discussed feedback received from stakeholders on the August 2012 FASB Exposure Draft, Comprehensive Income (Topic 220): Presentation of Items Reclassified Out of Accumulated Other Comprehensive Income. The Board redeliberated issues that arose from stakeholder cost-benefit concerns, effective date, and transition and decided the following:
  1. An entity is required to provide enhanced disclosures to present separately by component reclassifications out of accumulated other comprehensive income.
     
  2. An entity is required to disclose the effect of significant items reclassified out of accumulated other comprehensive income on the respective line items of net income but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety. For other reclassification items that are not required under U.S. GAAP to be reclassified directly to net income in their entirety, an entity would be required to provide a cross-reference to other disclosures currently required under U.S. GAAP for those items.
     
  3. When presenting the requirements of items 1 and 2 above in the notes to the financial statements, an entity is not required to present the information in a tabular format provided all the required information is in a single location.
     
  4. An entity may present the required information of item 2 above in the notes or parenthetically on the face of the financial statements provided that all the information is presented in one place. However, an entity may voluntarily provide duplicate information in the notes and on the face of the financial statements.
     
  5. Items 1 and 2 above are required for interim reporting periods for public entities subject to SEC condensed interim financial statement reporting guidance.
     
  6. A nonpublic entity is not required to provide the information in item 2 above for interim reporting periods.
     
  7. The guidance will be effective for reporting periods beginning after December 15, 2012, for public entities and for reporting periods beginning after December 15, 2013, for nonpublic entities.
The Board directed the staff to draft a final Accounting Standards Update for vote by written ballot, reflecting the decisions summarized above.


Technical corrections—next phase. The Board discussed the scope of the amendments to the FASB Accounting Standards Codification® for technical corrections, including Master Glossary amendments, benefit plan illustrative guidance amendments, and other amendments. The Board decided to issue a separate Exposure Draft for amendments related to Master Glossary items. These amendments relate to corrections to unlinked terms and duplicate terms in the Master Glossary. The staff plans to bring the other items (that is, benefit plan illustrative guidance and other amendments) to the Board at a later date for one or more separate Exposure Drafts.

For unlinked terms in the Master Glossary, the Board decided to propose adding links for certain unlinked terms already used in the Codification and deleting other terms not used.

For duplicate terms in the Master Glossary, the Board decided not to address as part of the Technical Corrections project any duplicate terms related to other active projects (they will be addressed in those other projects).

The Master Glossary contains several terms related to defined benefit plans and defined contribution plans that also result in redundancy. To resolve this redundancy, the Board decided to propose combining the five related defined benefit plan definitions into a single definition of defined benefit plan and the three related defined contribution plan definitions into a single definition of defined contribution plan.

The Master Glossary also contains two definitions for the term fair value. These definitions are derived from FASB Statements No. 157, Fair Value Measurements, and No. 123(R), Share-Based Payment. To distinguish between the two definitions and clarify that the one derived from Statement 123(R) is a fair value-based measure, the Board decided to propose renaming the Statement 123(R) definition as share-based payment value.

For other duplicative terms in the project scope, the Board decided to propose various solutions for resolving the redundancy.

The Board does not expect any change in practice as a result of these proposed amendments.

The Board directed the staff to draft an Exposure Draft of Master Glossary amendments for vote by written ballot. The Board decided on a 90-day comment period.


Insurance contracts. The FASB continued its discussion on the accounting for insurance contracts, focusing on how an entity would account for ceding commissions, contracts acquired through business combinations and portfolio transfers, and discretionary payments to policyholders of a mutual insurer as a result of a contractual participation feature.

Ceding Commissions

The Board tentatively decided that the cedant should treat ceding commissions that are not contingent on claims or benefits experience that it receives from the reinsurer as a reduction of the premium ceded to the reinsurer.

Business Combinations and Portfolio Transfers

The Board tentatively decided that:
  1. An insurer should, at the acquisition date, measure at fair value the insurance liabilities assumed and insurance assets acquired in a business combination, the components of which should be measured as follows:
     
    1. Expected net cash flows measured in accordance with the insurer’s accounting policies for insurance contracts that it issues using current assumptions. The discount rate determined at the acquisition date should be deemed the locked-in rate at which interest expense is accreted and presented in the statement of comprehensive income.
       
    2. Single margin measured as the difference between the fair value of the insurance contract liability (that is, the hypothetical premium) and the expected net cash flows determined in (a) above.
       
  2. An insurer should measure a portfolio of insurance contracts acquired in a portfolio transfer that does not meet the definition of a business combination in accordance with the insurance contracts standard.
     
  3. Insurance contracts that are acquired through a combination of entities or businesses under common control should apply the guidance in Topic 805, Business Combinations.
     
  4. For business combinations prior to the effective date of the insurance contracts standard, applying the transition guidance will require insurers to reallocate the purchase price attributed to the insurance contracts liability to the components in accordance with decisions reached in 1 – 3 as of the acquisition date, using the fair value guidance in effect at that date.
Discretionary Payments to Policyholders of a Mutual Insurer as a Result of a Contractual Participation Feature

The Board tentatively decided to clarify that on measuring the insurance contracts liability, discretionary payments as a result of a contractual participation feature should be based on the insurer's expectation of payments to policyholders (considering the entity is a going concern), thus resulting in equity (deficits) for mutual insurers.

Next Steps

The Board will continue its discussion on the insurance contracts project at a joint meeting with the IASB on November 20, 2012, on the determination of the discount rate and the rate at which interest is accreted for contracts whose cash flows are affected by expected asset returns but for which “mirroring” does not apply. Also on November 20, 2012, the FASB will discuss when an entity should apply the insurance contracts standard for guarantee contracts that meet the definition of insurance.