SUMMARY OF BOARD DECISIONS

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.

February 1, 2011 FASB/IASB Joint Videoconference Board Meeting

Revenue recognition. The FASB and the IASB continued their redeliberations of the Exposure Draft, Revenue from Contracts with Customers, by discussing the accounting for warranties.

The Boards decided that an entity should account for some warranties as a warranty obligation (that is, as a cost accrual) in accordance with IAS 37, Provisions, Contingent Liabilities and Contingent Assets, or FASB Accounting Standards Codification® Topic 450, Contingencies. To determine which warranties an entity would account for as a cost accrual, the Boards decided that:
  1. If a customer has the option to purchase a warranty separately from the entity, the entity should account for the warranty as a separate performance obligation. Hence, the entity would allocate revenue to the warranty service.
     
  2. If a customer does not have the option to purchase a warranty separately from the entity, the entity should account for the warranty as a cost accrual unless the warranty provides a service to the customer in addition to assurance that the entity’s past performance was as specified in the contract (in which case the entity would account for the warranty service as a separate performance obligation).
The Boards also decided to develop implementation guidance to help an entity determine when a warranty provides a service to the customer in addition to assurance that the entity’s past performance was as specified in the contract.


Leases.

Definition of a lease

The IASB and the FASB discussed the definition of a lease and how to distinguish between a lease contract and a service contract. Using some examples, the Boards discussed the application of the following principles to identify a lease:
  1. Fulfilment of the contract depends on the supplier (lessor) providing a specified asset.
     
  2. The contract conveys to the customer (lessee) the right to control the use of the specified asset.
The Boards will continue their discussions at a future joint meeting.

This session was for education only, and thus the Boards did not make any technical decisions.


February 2, 2011 FASB/IASB Joint Videoconference Board Meeting

Revenue recognition. The Boards continued their redeliberations of the Exposure Draft, Revenue from Contracts with Customers, and discussed the accounting for the costs of obtaining a contract.

The Boards decided tentatively that:
  1. An entity should recognize an asset for the incremental costs of obtaining a contract that the entity expects to recover. Incremental costs of obtaining a contract are costs that the entity would not have incurred if the contract had not been obtained.
     
  2. An asset recognized for the costs of obtaining a contract should be presented separately on the statement of financial position and subsequently measured on a systematic basis consistent with the pattern of transfer of the goods or services to which the asset relates.
At a future meeting, the Boards will discuss the costs of fulfilling a contract.

Next Steps

At their next February meetings, the Boards will discuss the following topics:
  1. Measuring progress for a service
     
  2. Identifying distinct goods or services
     
  3. Onerous test
     
  4. Gift cards and breakage.

Insurance contracts. The FASB and the IASB continued their discussions on insurance contracts by discussing how insurers should account for the costs of obtaining insurance contracts.

The Boards tentatively decided that the cash flows included in the initial measurement of insurance contracts should include certain acquisition costs that relate to a portfolio of insurance contracts.

The Boards discussed whether acquisition costs included in the initial measurement of the cash flows should include only those costs associated with successful selling efforts. The IASB did not come to a consensus, and the FASB tentatively decided that the acquisition costs included in the initial measurement of an insurance contract should include only the costs directly related to successful selling efforts.

The FASB tentatively decided to include implementation guidance to clarify which acquisition costs should be included in the initial measurement of an insurance contract. The IASB did not come to a consensus on whether to include implementation guidance.

Additionally, the Boards asked the staff to provide further clarification on how to define incremental costs, direct costs, or direct and incremental costs to better understand the acquisition costs that would be included in the cash flows.