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, September 5, 2018 FASB Board Meeting

Codification improvements: financial instruments. The Board discussed proposed amendments to the Codification to clarify implementation issues related to Accounting Standards Updates No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, and No. 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.

The Board decided to amend the guidance in Update 2016-13 for each of the following issues:
  1. Effective interest rate (EIR) for variable rate loans
  2. Adjusting the EIR for prepayment expectations
  3. Consideration of costs to sell when foreclosure becomes probable
  4. Clarification that reinsurance receivables are within the scope of Subtopic 326-20
  5. Reference error in paragraph 310-40-55-14
  6. Cross-references in the guidance for equity method losses.
The Board did not have questions or issues to discuss about implementation-related technical inquiries related to Update 2017-12. The staff’s interpretations related to the following issues are posted on the Hedging Implementation website:
  1. Switching hedge effectiveness assessment methods for net foreign investment hedges
  2. Timing of initial quantitative hedge effectiveness assessment
  3. Simultaneous designation of hedged item for fair value and cash flow hedges
  4. Sale or transfer of assets out of a closed portfolio in a last-of-layer hedge
  5. Documentation of a fallback long-haul hedge effectiveness assessment method
  6. Change in hedged risk guidance for a cash flow hedge of forecasted issuance of fixed-rate debt
  7. Reclassification of prior-period information.
The Board decided to amend the guidance in Update 2017-12 for each of the following issues:
  1. Partial-term fair value hedges of both interest rate risk and foreign exchange risk
  2. Amortization of fair value hedge basis adjustments
  3. Disclosure of fair value hedge basis adjustments
  4. Consideration of the hedged contractually specified interest rate under the hypothetical derivative method
  5. Not-for-profit scope
  6. Hedge accounting provisions applicable to certain private companies and not-for-profit entities
  7. Application of a “first of” cash flow hedging technique to overall cash flows on a group of variable interest payments
  8. Transition guidance clarification.
The Board decided to amend the guidance in Update 2016-01 for each of the following issues:
  1. Applicability of Topic 820 to the measurement alternative
  2. Fair value disclosure exclusion for held-to-maturity (HTM) debt securities measured at amortized cost for nonpublic business entities
  3. Scope exclusions for Topics 320 and 321
  4. Marketable securities as nonmonetary balance sheet items.
The Board directed the staff to begin work on a research project regarding the measurement alternative and observable transactions identified after the reporting date.

Analysis of Costs and Benefits

The Board concluded that it has received sufficient information and analysis to make an informed decision on the issues presented and that the expected benefits of the proposed amendments justify the expected costs.

Next Steps

The Board directed the staff to:
  1. Draft a proposed Accounting Standards Update for vote by written ballot, which would include both:
    1. The proposed amendments related to the June 11, 2018 Credit Losses Transition Resource Group (TRG) meeting discussed at the August 29, 2018 Board meeting
    2. Proposed amendments related to Codification improvements to various financial instrument Topics listed above discussed at the September 5, 2018 Board meeting.
  2. Include questions in the Exposure Draft relating to whether:
    1. Entities should be allowed separate elections to adjust the EIR for projections of future interest rate environments and for prepayment expectations.
    2. Partial-term fair value hedging should be expanded to all risks eligible for hedge accounting.
The Board decided that the proposed Update should have a comment period of 30 days.

 
Consolidation targeted improvements to related party guidance for variable interest entities. The Board discussed a scope clarification to the private company accounting alternative, which will be included as part of the forthcoming final Accounting Standards Update, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities.
 
The Board decided that a private company reporting entity cannot apply the private company accounting alternative to a legal entity in which it has a direct or indirect controlling financial interest when considering the General Subsections of Topic 810 (and not the Variable Interest Entities Subsections of Topic 810). 
 
Next Steps
 
The Board directed the staff to continue drafting a final Accounting Standards Update for vote by written ballot.