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.

August 1, 2012 FASB Board Meeting

Accounting for financial instruments: impairment. The Board discussed how it would like the staff to address stakeholders’ significant concerns about the understandability, operability, and auditability of the three-bucket credit impairment model under development. The Board expressed concern that attempting to clarify the transfer notion and the Bucket 1 measurement concept may still result in a credit impairment allowance that is difficult for users to understand as a result of the dual-measurement approach in the three-bucket model. As a result, the Board directed the staff to explore an alternative expected loss model that (a) does not utilize a dual-measurement approach and (b) reflects all credit risk in the portfolio. Such an approach would allow the Board to leverage several key concepts that have been jointly deliberated and agreed upon with the IASB, while at the same time creating an impairment model that is more understandable, operable, and auditable. The Board indicated its intent to move forward expeditiously in deliberating such an alternative approach. The FASB has invited the IASB to monitor the deliberations on the alternative model and the FASB has committed to sharing their progress with the IASB early this fall.

Accounting for financial instruments: classification and measurement.

Deferred Tax Assets

The Board discussed the feedback received on the Exposure Draft regarding the evaluation of a valuation allowance on a deferred tax asset related to a debt instrument for which qualifying changes in fair value are recognized in other comprehensive income (FVOCI). The Board directed the staff to perform additional analysis for discussion at a future meeting.

Recognition of Foreign Currency Gains and Losses for Foreign-Currency-Denominated Debt Instruments Classified at FVOCI

The Board discussed the recognition of foreign currency gains and losses on foreign-currency-denominated debt instruments for which qualifying changes in fair value are recognized in other comprehensive income. The Board decided to recognize foreign currency gains and losses on foreign-currency-denominated debt instruments measured at FVOCI in net income. The Board will discuss how to measure these foreign currency gains and losses at a future meeting.

Presentation of Debt Instruments Subsequently Identified for Sale

The Board discussed the presentation of debt instruments that qualify for the amortized cost category at initial recognition and are subsequently identified for sale. The Board decided that an entity should present debt instruments identified for sale in a separate line item on the face of the statement of financial position (they should not be combined in a single line with debt instruments held for the collection of contractual cash flows). An entity also would be required to disclose (a) why it decided to depart from its held-for-collection business model for these instruments and (b) the amortized cost, fair value, and the resulting gain or loss recognized on the sale of such instruments during the reporting period.

Transfers and servicing: repurchase agreements and similar transactions. The Board decided that a repurchase agreement or similar transaction with the following characteristics would be accounted for as a secured borrowing transaction:
  1. The agreement involves a transfer of existing financial assets at its inception.
  2. The agreement involves both a right and an obligation to repurchase the financial assets.
  3. The initial transfer and forward repurchase agreement involve the same counterparty.
  4. The agreement to repurchase the financial assets is entered into contemporaneously, or in contemplation of the initial transfer.
  5. The repurchase price is fixed or readily determinable.
  6. The financial assets specified under the forward repurchase agreement are identical to or substantially the same as the financial assets transferred at inception.
The Board also decided to make minor clarifications to the criteria for determining whether the financial assets to be repurchased are substantially the same as the financial assets initially transferred (FASB Accounting Standards Codification® paragraph 860-10-40-24(a)).

The Board also discussed repurchase agreements and similar transactions that do not have one or more of the above-listed characteristics. The Board decided that the existing derecognition conditions in Codification Subtopic 860-10 would continue to be used in determining whether the transactions should be accounted for as secured borrowings or sales with forward repurchase commitments. The Board also decided to clarify the application of the isolation criterion for derecognition to repurchase agreements and similar transactions.

Additionally, the Board decided to require an entity to disclose the following information in the notes to the financial statements for all repurchase agreements and similar transactions:
  1. The reasons for concluding whether such transactions are secured borrowings or sale transactions with forward repurchase commitments
  2. The reasons for concluding that transactions involving similar, but not identical, financial assets do or do not satisfy the substantially the same criteria, which may include a qualitative and quantitative assessment.
(The Board will discuss possible additional disclosures for repurchase agreements and similar transactions at a future meeting.)

Insurance contracts. The FASB continued its discussions on insurance contracts by considering whether charitable gift annuities issued by not-for-profit entities meet the definition of insurance and would, therefore, fall within the scope of the proposed insurance contracts standard. The Board also considered the impact that the proposed insurance contracts standard would have on the reporting by not-for-profit entities, specifically the recognition of the expected contribution component.

Charitable Gift Annuities

The Board tentatively decided to exclude from the scope of the proposed insurance contracts standard charitable gift annuities, which possess a donation element and are issued by not-for-profit entities within the scope of FASB Accounting Standards Codification® Topic 958, Not-for-Profit Entities.

Next Steps

The Board will continue its discussion of insurance contracts in the week beginning August 20, 2012.