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.

December 14, 2010 FASB/IASB Joint Board Meeting

Fair value measurement.

Measuring the Fair Value of a Liability Issued with an Inseparable Third-Party Credit Enhancement

The Boards tentatively decided that the requirements for measuring the fair value of a liability issued with an inseparable third-party credit enhancement:
  1. Only apply to guarantees purchased by the issuer of the liability; and
  2. Do not apply to liabilities guaranteed by other entities within the consolidated or combined group.
When an entity is measuring the fair value of a liability issued with an inseparable third-party credit enhancement, the Boards tentatively decided that the unit of account is the obligation without the credit enhancement, which means that the entity should measure the fair value of the liability using its own credit standing, not that of the third-party guarantor.

For the FASB, the above tentative decisions confirm principles that are already included in Topic 820, Fair Value Measurements and Disclosures, and will result only in clarifications of wording to be consistent with IFRSs. For the IASB, the tentative decisions are consistent with the proposals in the IASB’s Exposure Draft, Fair Value Measurement.

The IASB also tentatively decided that an entity would be required to disclose the existence of a third-party credit enhancement of a liability it has issued, as is currently required by U.S. GAAP.

Disclosures about Fair-Value-Based Measures (such as Fair Value Less Costs to Sell)

The Boards tentatively decided that the disclosures an entity is required to make about fair value measurements also apply to fair-value-based measurements (for example, fair value less costs to sell). These disclosures are currently required by U.S. GAAP and are consistent with those proposed in the IASB’s Exposure Draft, but Topic 820 and the IASB’s forthcoming fair value measurement standard will be made more explicit.

Revenue recognition. The Boards considered a summary of the following:
  1. The responses to the Exposure Draft, Revenue from Contracts with Customers, that was published in June 2010
  2. Outreach activities undertaken in the last seven months.
The Boards also approved the plan for redeliberating the issues raised by respondents to the Exposure Draft.

The Boards will commence redeliberations in January 2011 by considering the two fundamental issues raised by respondents: separating a contract and determining when goods or services are transferred to a customer.

Balance sheet—offsetting. The Boards discussed the following issues:
  1. Whether offsetting should be permitted for multilateral arrangements
  2. Transition requirements and the comment period for the next due process document.
The Boards tentatively decided the following:
  1. An entity should be required to offset a recognized financial asset and financial liability if the criteria for offset are met, whether the right of offset arises from a bilateral or a multilateral arrangement (that is, between two or more parties).
  2. An entity would be required to apply the proposed requirements retrospectively.
  3. The proposed Accounting Standards Update will have a 90-day comment period.

December 15, 2010 FASB/IASB Joint Board Meeting

Insurance contracts. The Boards considered background material in preparation for their deliberations of the issues raised in response to the IASB's Exposure Draft, Insurance Contracts, and the FASB's Discussion Paper, Preliminary Views on Insurance Contracts, including:
  1. A proposed project timetable intended to enable the IASB to finalize a standard on insurance contracts, and the FASB to finalize an Exposure Draft, by June 2011.
  2. A summary of the reasons for the Boards’ decision to develop a standard on insurance contracts and the proposed measurement model.
  3. A summary of feedback received during outreach activities during the comment period and overview of the main issues raised.
The Boards did not make any decisions.

Next Steps

At the January 2011 meeting, the Boards expect to consider a comment letter analysis and to continue their discussions on the accounting for insurance contracts.

Accounting for financial instruments: hedge accounting. At this education session, the proposals contained in the IASB’s Exposure Draft, Hedge Accounting, were outlined for the FASB. No decisions were made.

December 16, 2010 FASB/IASB Joint Board Meeting

Accounting for financial instruments: impairment. The Boards discussed feedback from outreach on the operational feasibility of Model 4A. Model 4A was an impairment model tentatively supported by the Boards during the December 8, 2010 joint meeting. Model 4A as initially developed would have required entities to recognize the higher of a 12-month expected loss estimate and a time-proportionate allowance balance calculated under Model 4 as the entities’ allowance for losses for the “good” book. This meant that the 12-month expected loss estimate would establish a floor for the “good” book allowance. The model also required recognizing impairment in the “bad” book to fully cover lifetime expected losses. The Boards asked the staff to undertake some outreach to further investigate the operationality of Model 4A and to further consider whether the floor should be a 12-month expected loss estimate or a loss estimate based on the amount of credit losses expected to occur within the foreseeable future.

The Boards tentatively decided to change the floor calculation in Model 4A from a 12-month expected loss estimate to a loss estimate based on the amount of credit losses expected to occur within a period that can be reliably estimated being no less than 12 months. The Boards agreed to issue a supplemental document seeking input from stakeholders on Model 4A. The Boards anticipate publication of the document in January 2011.

Balance sheet—offsetting. The Boards continued their discussion from the December 14th  joint meeting. The Boards decided that an entity should provide information about financial assets and liabilities subject to offset, and related arrangements (such as collateral agreements), and the effect of those arrangements on an entity’s net exposure, by category of financial instrument, including:
  1. The gross carrying amount
  2. Amounts deducted as a result of the proposed offset criteria to determine the carrying amounts in the statement of financial position
  3. The portion of the exposures that is covered by a legally enforceable netting agreement (other than in (2))
  4. The amount of financial instrument collateral (cash collateral and fair value of noncash financial asset collateral should be separately disclosed) obtained or pledged in respect to those assets and liabilities
  5. The net exposure after taking into account the effect of the items in (2) – (4).
Such information should be presented in a single note and in a tabular format, unless another format is more appropriate. Additionally, financial assets and financial liabilities should be separately disclosed.

Additionally, the Boards decided that an entity would also be required to provide a description of the nature of offset agreements for the amounts included in item (3) above.

The Boards directed the staff to prepare an Exposure Draft for vote by written ballot.