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.

March 21, 2012 FASB/IASB Joint Videoconference Board Meeting

Insurance contracts. The IASB and the FASB continued their discussions on insurance contracts by considering the unit of account and separation of investment components from the insurance contract.

Unit of Account

The IASB tentatively decided that:
  1. A portfolio of insurance contracts should be defined as contracts that are

    1. Subject to similar risks and priced similarly relative to the risk taken on; and
       
    2. Managed together as a single pool.
       
  2. The unit of account used to determine the residual margin and perform the onerous test should be the portfolio.
     
  3. The unit of account used to release the residual margin should not be prescribed. However, the release of the residual margin should be performed in a manner consistent with the objective of releasing the residual margin over the coverage period to the period(s) in which the service is provided.
The FASB tentatively decided that:
  1. A portfolio of insurance contracts should be defined as contracts that are

    1. Subject to similar risks and priced similarly relative to the risk taken on; and
       
    2. Have similar duration and similar expected patterns of release of the single margin.
       
  2. The unit of account used to determine and release the single margin and perform the onerous contract test should be the portfolio.
Separation of Investment Components from the Insurance Contract

The IASB and the FASB tentatively decided that:
  1. An investment component in an insurance contract is an amount that the insurer is obligated to pay the policyholder or a beneficiary regardless of whether an insured event occurs.
     
  2. In the statement of financial position, insurers should not be required to present investment components separately from the insurance contract. However insurers should disclose both:

    1. The portion of the insurance contract liability that represents the aggregated portions of premiums received (and claims/benefits paid) that were excluded from the statement of comprehensive income; and
       
    2. The amounts payable on demand.
In addition, the IASB tentatively decided that insurers should exclude from the aggregate premium presented in the statement of comprehensive income the present value of the amounts that the insurer is obligated to pay to policyholders or their beneficiaries regardless of whether an insured event occurs, determined consistently with measurement of the overall insurance contract liability. The FASB did not vote on this issue and requested that the staff provide further information about possible interpretations of the wording.

Both Boards directed the staff to consider whether any investment components (as defined) are sufficiently distinct from the insurance component that they should be recognized separately and measured applying the financial instrument standard, rather than the insurance contracts standard.

Next Steps

Both Boards will continue their discussion on insurance contracts in the week commencing April 16, 2012.


March 21, 2012 FASB Board Meeting

Agenda decision: repurchase agreements and similar transactions. The Board discussed whether to add a new project to its agenda related to the accounting and disclosure requirements for repurchase agreements and similar transactions. The chairman decided to add the project to the Board’s agenda, citing the need to revisit the accounting to address application issues, changes in the marketplace, and to ensure that investors obtain useful information about these transactions. The Board discussed several possible alternative approaches for proceeding with the project. The Board tentatively decided to reexamine the guidance in FASB Accounting Standards Codification® Topic 860, Transfers and Servicing, that is specific to the assessment of effective control for repurchase agreements and similar transactions, with the objective of differentiating between those transactions that are secured borrowings and those that are more clearly sales of the transferred financial assets with forward purchase agreements. This approach presents opportunities for increased convergence with IFRS. In addition, in light of investor requests for expanded disclosure about the credit and liquidity risks arising from these transactions, the Board decided to explore potential improvements to current disclosure requirements for repurchase agreements and similar transactions.