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.

Wednesday, June 6, 2018 FASB Board Meeting

Insurance—targeted improvements to the accounting for long-duration contracts. The Board redeliberated the amendments in the September 2016 proposed Accounting Standards Update, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts.

Discount Rate Reset upon Initial Adoption (Liability for Future Policy Benefits for Traditional and Limited-Payment Contracts)

The Board decided to revise the modified retrospective transition method discount rate whereby as of the beginning of the earliest period presented (that is, the transition date) an insurance entity would retain the discount rate assumption for purposes of calculating net premiums and interest accretion. For balance sheet purposes, the liability would be remeasured at the current upper-medium grade fixed-income instrument yield, resulting in an adjustment to opening accumulated other comprehensive income at the transition date.

Effective Date

The Board decided that the effective date of the amendments in the final Update should be as follows:
  1. For public business entities, the amendments will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.
  2. For all other entities, the amendments will be effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.
Early adoption is permitted for all entities.

Next Steps

The Board directed the staff to draft an Accounting Standards Update for vote by written ballot.

Distinguishing liabilities from equity (including convertible debt). The Board began deliberations by discussing the direction of the project as it relates to the paths for (1) accounting for convertible instruments and (2) determining whether instruments are indexed to an entity’s own stock (referred to as indexation) within the context of the derivative scope exception.

Convertible Instruments

The Board directed the staff to further research convertible instruments. The research will focus on accounting for convertible instruments with embedded conversion features as a single unit of account based on the model for traditional convertible debt. Convertible instruments with embedded conversion features that meet the definition of a derivative and that are ineligible for the derivative scope exception are outside the scope of the research. The research also will focus on how to improve disclosures and provide information about earnings per share.

Indexation

The Board directed the staff to further research the classification, disclosures, and earnings per share related to the following paths for determining whether a contract is indexed to an entity’s own stock within the context of the derivative scope exception:
  1. Monetary value.  An instrument (or feature) would not be indexed to an entity’s own stock if the monetary value of the obligation is based solely or predominantly on a fixed monetary amount or variations in something other than the fair value of the entity’s shares.
  2. Antidilution. An instrument (or embedded feature) would be considered indexed to an entity’s own stock if its settlement amount will equal the difference between (a) the fair value of a fixed number of the entity’s equity shares and (b) a fixed monetary amount or a fixed amount of a debt instrument issued by the entity. If the instrument’s strike price, or the number of shares, used to calculate the settlement amount is variable, the instrument (or embedded feature) would be indexed to the entity's own stock if the only variables that could affect the settlement amount would be a standard antidilution provision.
Consolidation targeted improvements to related party guidance for variable interest entities. The Board reconsidered its May 16, 2018 decisions regarding effective date and transition requirements for private companies in adopting the forthcoming final Accounting Standards Update, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities.

The Board decided that:
  1. For private companies, the amendments in the Update will be effective for fiscal years beginning after December 15, 2020.
  2. Private companies may early adopt the amendments in the Update.
  3. Private companies must apply the amendments in the Update retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented.
Next Steps

The Board directed the staff to continue drafting a final Accounting Standards Update for vote by written ballot.