Tentative Board Decisions
Tentative Board decisions are provided for those interested in following the Board’s deliberations. All of the reported decisions are tentative and may be changed at future Board meetings.
Financial Instruments—Impairment. The Board continued redeliberating the December 2012 proposed Accounting Standards Update, Financial Instruments—Credit Losses (Subtopic 825-15), specifically discussing the transition method and transition disclosures.
Other Than Temporarily Impaired Debt Securities
The Board decided that an entity would be required to adopt the new requirements for other than temporarily impaired debt securities prospectively as of the effective date. Amounts previously recognized in accumulated other comprehensive income as of the date of adoption that relate to significant improvements in cash flows would continue to be accreted to interest income over the remaining life of the debt security on a level-yield basis, consistent with the guidance in paragraph 320-10-35-35. Any improvements in cash flows of a security due to improvements in credit after the date of adoption would be recorded as a reduction in allowance for credit losses.
Purchased Credit Impaired (PCI) Assets and Certain Beneficial Interests
The Board decided that all assets accounted for under Subtopic 310-30 on loans and debt securities acquired with deteriorated credit quality would be classified as PCI assets at the date of adoption, including those acquired assets for which Subtopic 310-30 has been applied by analogy. An entity would not be permitted to perform further assessments to determine other acquired assets that may meet the revised definition of a PCI. The Board decided that entities would be required to gross up the allowance for expected credit losses for all PCI assets at the date of adoption and would continue to recognize interest income based on the yield of such assets as of the adoption date. Subsequent changes in the expected credit losses on such assets would be recorded through the allowance for credit losses, with a corresponding adjustment to the current-period provision for credit losses.
In a previous Board decision, the Board decided to apply the PCI guidance to certain beneficial interests. The Board decisions on transition for PCI assets will also be extended to those beneficial interests.
All Other Assets
For all other assets, the Board affirmed the proposal to require transition to the new requirements by recognizing a cumulative-effect adjustment to the statement of financial position as of the beginning of the first reporting period in which the guidance is effective.
Transition Disclosures and Next Steps
The Board affirmed the transition disclosure requirements included in the proposed Update and discussed the next steps in the preparation of a staff draft of the final standard.
During drafting of the Accounting Standards Update, the staff will perform outreach with preparers and users on the disclosure requirement to disaggregate credit quality disclosures by vintages, share the staff draft of decisions with the Board for feedback and with stakeholders as part of an external review process, gather information on any “sweep” issues, and seek feedback on the effective date.
The staff will then discuss with the Board at a future public meeting any sweep issues identified, cost-benefit and complexity of the decisions reached to date, effective date, and permission to ballot.
Insurance—Disclosures about Short-Duration Contracts. The Board discussed feedback received from external reviewers on the draft FASB Accounting Standards Update.
Claims Development Table
The Board decided that all years in the claims development table that precede the current reporting period and the related disclosure about the history of claims duration should be presented as required supplementary information.
The Board decided to include a disclosure objective of providing information about claim frequency along with a description of methodologies for determining claim frequency information, unless it is impracticable to do so.
Incurred-But-Not-Reported (IBNR) Liabilities
The Board decided that for each accident year presented in the claims development table, entities should disclose the amount of IBNR liabilities plus expected development on reported claims and provide an explanation of the methodologies used for determining the amounts disclosed.
Effective Date and Transition
The Board decided that for public business entities, the final guidance should be effective for annual reporting periods beginning after December 15, 2015, and for interim reporting periods within annual reporting periods beginning after December 15, 2016. The Board decided on a one-year delay for all other entities, with early adoption permitted for all entities.
The Board affirmed that the expected benefits justify the perceived costs of the guidance included in the draft Update and directed the staff to proceed to a final Accounting Standards Update for vote by written ballot.