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 redeliberations on its December 2012 proposed Accounting Standards Update, Financial Instruments—Credit Losses (Subtopic 825-15), specifically discussing the accounting for purchased financial assets with credit deterioration (PCD assets) and how premiums and discounts should be considered when measuring credit losses.
Accounting for PCD Assets
The Board decided that when estimating the allowance for credit losses using a method that does not discount future expected cash flows, entities should base the allowance on the par amount of the PCD asset.
When estimating the allowance for credit losses using a method that discounts future expected cash flows, entities should use the discount rate that equates the purchase price of the PCD asset with the present value of estimated future cash flows.
The Board discussed requiring the use of a discounted cash flow approach to measure expected credit losses on PCD assets at their acquisition date but decided not to require the use of a specific estimation method, either initially or on subsequent measurement dates.
Treatment of Premiums and Discounts When Measuring Credit Loss
The Board decided that an allowance for credit losses measured using a method that does not discount future expected cash flows should reflect expected credit losses of the amortized cost basis of the financial assets, including premiums and discounts. To minimize disruption to the processes entities currently use to measure credit losses, however, an entity may separately measure expected credit losses on each of the following components of an amortized cost basis:
- Unpaid principal balance (face amount)
- Premiums or discounts (including net deferred fees and costs) and foreign exchange and fair value hedge accounting adjustments.
Private Company Hedge Documentation
At a meeting on June 29, 2015, the Board decided to give all entities the flexibility of documenting the initial prospective quantitative assessment of hedge effectiveness at any time between the initial hedge designation date and the quarterly effectiveness test date. At today’s meeting, the Board considered but decided not to provide private companies with further relief from hedge documentation requirements.
The Board will include a question in the forthcoming proposed Accounting Standards Update asking private companies to comment on the need for further changes to hedge documentation requirements.
Based on the tentative decisions, the staff plans to:
- Develop a staff draft of a proposed Accounting Standards Update to amend Topic 815 reflecting the Board’s decisions
- Prepare an analysis of the costs, benefits, and complexity of the proposed Update, including any additional consideration of the effect the decisions may have on entities other than public business entities
- Determine the transition approach
- Discuss the comment period with the Board.