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 16, 2011 Joint FASB/IASB Videoconference Board Meeting

Insurance contracts. The IASB and the FASB continued their discussions on insurance contracts by considering the accounting for explicit account balances within insurance contracts. In addition, the IASB and FASB received an oral update of the feedback received at the IASB’s Insurance Working Group held on October 24, 2011.

Disaggregation of Explicit Account Balances

The FASB tentatively decided to separate explicit account balances from the insurance contract liability. Explicit account balances are account balances within a contract that meet both of the following criteria:
  1. The balance is an accumulation of the monetary amount of transactions between the policyholder and an insurer.
     
  2. The balance is credited with an explicit return. A return is explicit if it is determined by applying either of the following to the balance:

    1. A contractual formula in which the insurer may have the ability to reset the return rate during the life of the contract.
       
    2. An allocation determined directly by the performance of specified assets.
IASB members indicated their preference to measure explicit account balances as part of the insurance contract and to disaggregate them for presentation or disclosures. IASB members indicated that they would like to explore an approach in which some other deposit components of insurance contracts could be disaggregated in the same way. The Boards plan to consider at a future meeting:
  1. Whether there are additional account balances that should be separated from the insurance contract liability.
     
  2. How income and expense items related to the explicit account balances should be recognized in the statement of comprehensive income.
     
  3. Whether to measure separated account balances:

    1. Using requirements other than those being developed in the insurance contracts project; or
       
    2. As part of the insurance contract and to disaggregate those account balances for presentation or disclosure.
Next Steps

Both Boards will continue their joint discussions on insurance contracts in the week commencing December 12, 2011. The FASB plans to hold an education session on participating contracts on November 22, 2011, with the Board meeting to follow on November 30, 2011.

Leases. The FASB and the IASB discussed consequential amendments to the business combinations guidance and the borrowing costs guidance in IFRSs and U.S. GAAP and transition issues related to business combinations.

Business Combinations and Borrowing Cost Consequential Amendments

The Boards tentatively decided the following in relation to the measurement of lease assets and lease liabilities acquired in a business combination:
  1. If the acquiree is a lessee, an acquirer should recognize a liability to make lease payments and a right-of-use asset. The acquirer should measure:
     
    1. The liability to make lease payments at the present value of future lease payments in accordance with the proposed leases guidance, as if the associated lease contract is a new lease at the acquisition date
       
    2. The right-of-use asset equal to the liability to make lease payments, adjusted for any off-market terms in the lease contract.
       
  2. If the acquiree is a lessor applying the receivable and residual approach, an acquirer should recognize a right to receive lease payments and a residual asset. The acquirer should measure:
     
    1. The right to receive lease payments at the present value of future lease payments in accordance with the proposed leases guidance, as if the associated lease contract is a new lease at the acquisition date
       
    2. The residual asset as the difference between the fair value of the underlying asset at the acquisition date and the carrying amount of the right to receive lease payments.
       
  3. If the acquiree is a lessor of investment property, an acquirer should apply the guidance in IFRS 3, Business Combinations, or Topic 805, Business Combinations, that relates to acquired operating leases.
     
  4. If the acquiree has short-term leases (that is, leases for which, at the date of acquisition, the maximum remaining term of the lease contract is 12 months or less), an acquirer should not recognize separate assets or liabilities related to the lease contract at the acquisition date.
The Boards tentatively decided that, upon transition, a lessee that previously recognized assets or liabilities relating to favorable or unfavorable terms in acquired operating leases should derecognize those assets or liabilities and adjust the carrying amount of the right-of-use asset by the amount of any asset or liability derecognized.

The FASB tentatively decided that, upon transition, a lessor applying the receivable and residual approach that previously recognized assets or liabilities relating to favorable or unfavorable terms in acquired operating leases should derecognize those assets or liabilities and adjust retained earnings upon transition.

The Boards tentatively decided that interest expense incurred in a lease should be included in the scope of IAS 23, Borrowing Costs, and Topic 835, Interest, for the purposes of determining the interest costs or borrowing costs that could be capitalized.

Transition—Secured Borrowing

The Boards tentatively decided that, on transition to the new leases guidance, a lessor would continue to account for the securitization of lease receivables associated with current operating leases as secured borrowings in accordance with existing U.S. GAAP and IFRSs. This tentative decision applies to a lessor regardless of whether the lessor elects a fully retrospective approach to transition.