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.

March 12, 2014 FASB Board Meeting

Accounting for Financial Instruments—Classification and Measurement. The Board continued redeliberating the proposed Accounting Standards Update, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, deciding to retain the separate models in existing U.S. GAAP for determining classification of loans and securities.

The Board directed the staff to analyze the current U.S. GAAP definition of a security to determine whether changes are needed to more clearly distinguish the instruments to be evaluated using the securities classification model.

Accounting for Financial Instruments—Impairment. The Board discussed whether the current expected credit losses (CECL) model in the December 2012 proposed Accounting Standards Update, Financial Instruments—Credit Losses (Subtopic 825-15), should apply to all financial assets.

The Board decided that the CECL model should apply to financial assets measured at amortized cost. For financial assets measured at fair value with qualifying changes in fair value recognized in other comprehensive income (FV-OCI), the Board decided that expected credit losses should be recognized as follows:
  1. An entity should not recognize expected credit losses if the financial asset’s fair value equals or exceeds its amortized cost basis.
  2. If the financial asset’s fair value is less than its amortized cost basis, an entity should recognize expected credit losses in net income determined under the CECL model but limited to the difference between the financial asset’s fair value and its amortized cost basis.
The Board asked the staff to consider any follow-on issues as a result of its decision on financial assets measured at FV-OCI, such as the need for unit-of-account guidance for measuring expected credit losses.

For both financial assets measured at amortized cost and financial assets measured at FV-OCI, the Board will discuss at a future meeting whether expected credit losses recognized should be the entire difference between fair value and amortized cost when (1) an entity subsequently identifies a financial asset for sale or (2) it is more likely than not the entity will be required to sell a financial asset before recovery of its amortized cost basis.

Consolidation—Principal versus Agent Analysis. The Board continued redeliberating the November 2011 proposed FASB Accounting Standards Update, Consolidation (Topic 810): Principal versus Agent Analysis.

The Board discussed how to consider the interests of related parties for the determination of a controlling financial interest in the variable interest entity (VIE) model and in the voting interest entity (VOE) model. For purposes of this discussion, the Board assumed that the decision maker is a single reporting entity with the power to direct the activities that most significantly impact the economic performance of the VIE.

For purposes of determining the primary beneficiary, the Board decided that the decision maker should consider indirect interests in the VIE held through its related parties under a rebuttable presumption that they should be evaluated on a proportionate basis. However, this presumption may be overcome based on a qualitative assessment of the nature and substance of the related party relationship. As a result, depending on the nature and substance of the relationship, related party interests may be considered directly or not at all.

The Board decided that when a decision maker determines that it is not the primary beneficiary of the VIE, on an individual basis, there should not be a related party tie breaker test performed by any party in the related party group. However, if the related parties are being used to circumvent the consolidation guidance, the related party tie breaker test, as required by paragraph 810-10-25-44, must be performed. The Board directed the staff to conduct additional analysis and obtain stakeholder feedback with respect to this decision and a variation of this decision in which a related party other than the decision maker may have to consolidate a VIE depending on the facts and circumstances. The staff will report findings at a future meeting.

The Board also decided not to provide any further guidance for how interests held by related parties should be considered in the determination of a controlling financial interest in the VOE model.

Transfers and Servicing—Repurchase Agreements and Similar Transactions. The Board discussed the feedback received on the external review draft of the Accounting Standards Update, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Agreements, Repurchase Financings, and Disclosures.

The Board decided to modify the disclosure for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions accounted for as secured borrowings as follows to address operability concerns raised by external reviewers:
  1. Remove the component of the disclosure related to reporting the fair value of the collateral pledged as of the reporting date
  2. Remove the component of the disclosure related to reporting the remaining contractual maturity of the collateral pledged
  3. Remove the requirement to integrate the disaggregation by class of collateral pledged with the requirement to disclose the tenor of the financing agreement.
Additionally, the Board decided to extend the effective date for only this disclosure to periods beginning on or after March 15, 2015, for public business entities.

Next Steps

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

Financial Statements of Not-for-Profit Entities. The Board discussed the objective of providing liquidity information and agreed that the objective is to provide information that allows donors, creditors, and other users to assess the liquidity of a not-for-profit (NFP) entity. That includes providing information that enables users to identify and understand the effects of restrictions placed on an NFP’s assets, including designations by its board of directors, and the extent to which existing obligations impose demands for cash as they become due.

The Board discussed several ways that NFP entities could improve the financial information they provide about liquidity. Those ways include:
  1. Providing a classified statement of financial position
  2. Distinguishing assets limited as to use from other assets, either on the face of the statement of financial position or in notes
  3. Disclosing information in notes to financial statements about the nature, timing, amount, and effects on liquidity of external restrictions imposed by donors, contracts, and other sources as well as limits imposed by an entity’s board of directors.
  4. Disclosing specific information in notes to financial statements about an entity’s liquidity, which includes information such as (a) assets that can be liquidated to meet near-term demands (a time horizon determined by the NFP), (b) policies on the use of liquidity reserves in managing liquidity and liquidity risks, (c) past liquidity issues and whether they remain risks, and (d) existing conditions and circumstances that are known and are reasonably possible to affect an entity’s cash flow trends and liquidity.

Board members expressed differing degrees of support and reservations about requiring one or more of the alternatives stated above, including the degree to which they may overlap and might result in redundant disclosures. The Board instructed the staff to conduct further research and analysis on the implications of requiring various alternatives and how they would be portrayed in an NFP’s financial statements and notes.