Project Update
Amendments to EITF Issue 99-20
Last Updated: February 4, 2009 (Updated sections are indicated with an asterisk *)
The staff has prepared this summary of Board decisions for information purposes only. Those Board decisions are tentative and do not change current accounting. Official positions of the FASB are determined only after extensive due process and deliberations.
Project Objective
Due Process Documents
Decisions Reached at Last Meeting
Summary of Decisions Reached to Date
Next Steps
*Board/Other Public Meeting Dates
Background Information
Contact Information
Project Objective
The objective of this project is to amend the impairment (and related interest income measurement) guidance in EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets,” to achieve a more consistent determination of whether an other-than-temporary impairment has occurred.
Due Process Documents
On January 12, 2009, the Board completed this project with the issuance of FSP EITF 99-20-1, Amendments to the Impairment Guidance of EITF Issue No. 99-20.
Decisions Reached at the Last Meeting (January 7, 2009)
See Summary of Board Decisions.
Summary of Decisions Reached to Date
See FSP.
Next Steps
None.
*Board/Other Public Meeting Dates
The Board meeting minutes 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 become final only after a formal written ballot to issue a final Statement, Interpretation, FSP, or Statement 133 Implementation Issue.
|
January 7, 2009 |
Board Meeting—The Board considered comment letters on the proposed FSP and concluded redeliberations. |
|
*December 15, 2008 |
Board Meeting—The Board announced its decision to consider amending the impairment and interest income measurement guidance in EITF 99-20. |
Background Information
Currently, U.S. generally accepted accounting principles (GAAP) have two different models for determining whether the impairment of a debt security is other than temporary. For debt securities that are beneficial interests in securitized financial assets within the scope of Issue 99-20, an impairment is considered other than temporary if, based on the reporting entity’s best estimate of cash flows that a market participant would use in determining the current fair value of the beneficial interest, there has been an adverse change in those estimated cash flows. For debt securities that are not within the scope of Issue 99-20, Statement 115 applies. Statement 115 provides an example indicating that an impairment is other than temporary because it is probable that the holder will be unable to collect all amounts due according to the contractual terms.
The differences in the two models are summarized as follows:
- Issue 99-20 requires the use of market participant assumptions about future cash flows. This cannot be overcome by management judgment of the probability of collecting all cash flows previously projected.
- Statement 115 does not require exclusive reliance on market participant assumptions about future cash flows. Rather, Statement 115 permits the use of reasonable management judgment of the probability that the holder will be unable to collect all amounts due.
Some constituents commented that because Issue 99-20 requires entities to use market participant assumptions about future cash flows but does not permit consideration of whether it is probable that all previously projected cash flows will not be collected (as is permitted under Statement 115), applying Issue 99-20 in a dislocated market can automatically result in an other-than-temporary impairment when the fair value is less than the cost basis. Numerous constituents expressed concern about this result, especially in cases where after an analysis of current information the underlying assets are still expected to fully perform.
The Board also considered the following in evaluating whether Issue 99-20 should be amended:
- Issue 99-20 only applies to certain beneficial interests in securitized financial assets. Other impaired debt securities with similar economic risks (for example, credit quality) are assessed for other-than-temporary impairment in accordance with the Statement 115 model. For example, an entity would apply the Issue 99-20 model to a beneficial interest, while an entity would apply the Statement 115 model to a corporate bond with similar economic risks (for example, credit quality).
- Similar beneficial interests with the same current credit quality might be assessed for other-than-temporary impairment under different models depending on the credit quality when the beneficial interest was initially recognized.
In addition, the Board noted that reducing the number of impairment models for debt securities in U.S. GAAP eliminates one of the differences between U.S. GAAP and International Financial Reporting Standards.
Contact Information
Adrian Mills
Practice Fellow
aemills@fasb.org