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 a final standard.

December 15, 2008 Board Meeting

Agenda decisions—financial instruments. The Board discussed input from constituents regarding the accounting for financial instruments in light of the global financial crisis. Based on that input and consultation with other Board members, the FASB chairman announced his decision to add to the technical agenda a comprehensive project to address the complexity in existing standards of accounting and reporting for financial instruments. That project will be undertaken jointly with the IASB.

The FASB chairman also announced his decision to add four short-term projects to the Board’s agenda to address current practice issues related to financial instruments. The Board discussed these four projects and directed the staff to draft exposure documents relating to the following three projects:

Practice Issues with EITF Issue 99-20
Disclosures of Certain Financial Instruments
Clarification of the Embedded Credit Derivative Scope Exception in Paragraph 14B of Statement 133.

The Board will continue discussion of the fourth short-term project on Recoveries of Other-Than-Temporary Impairments (Reversals) at a future meeting.

Short-Term Project 1—Practice Issues with EITF Issue 99-20

The Board decided to address practice issues with EITF Issue No. 99-20, "Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets," by making the impairment guidance in it consistent with FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities . That is, as in Statement 115, a decline in fair value below the amortized cost basis that is other than temporary would be recognized as a realized loss through earnings.

The Board noted that this change simplifies U.S. GAAP. However, the Board acknowledges that differences continue to exist between U.S. GAAP and IFRS with regard to the accounting for financial instruments and that a comprehensive project to address the complexity in reporting for financial instruments will address those differences.

Effective Date, Transition, and Comment Period

The Board decided that the guidance should be effective as of the last day of all interim and annual reporting periods ending after December 15, 2008 and applied prospectively. In the first fiscal year that this FSP is applied, information related to quarterly interim periods that began on or before September 15, 2008 may be omitted. The Board also decided that the comment period for the exposure document should end on December 30, 2008. The Board expects to issue a proposed FSP on or around December 19, 2008, to allow for a comment period of approximately 10 days.

Short-Term Project 2—Disclosures of Certain Financial Instruments

The Board agreed to require enhanced disclosures about the impairment of:

Debt securities classified as available-for-sale
Debt securities classified as held-to-maturity
Loans
Long-term receivables.

The Board decided that for those instruments within the scope of this project, an entity should disclose:

The pro forma effects on pretax net income as if the instruments were (a) carried at fair value and (b) measured based on the incurred loss
The amount of the instruments reported in the statement of financial position and the amounts that would have been reported had they been measured:

At fair value
On a historical cost basis using an incurred loss method of measuring impairment

Qualitative disclosures including the valuation methodologies and factors resulting in the differences among the three measures of the instruments’ value.

The IASB is undertaking a similar project. The two Boards share a goal of requiring similar disclosures that would help investors when comparing financial statements of entities holding financial instruments within the scope of the proposed guidance.

Effective Date, Transition, and Comment Period

The Board decided that an entity should provide the disclosures in financial statements for fiscal years ending after December 15, 2008, and for quarterly interim periods within those fiscal years. In the first fiscal year that this FSP is applied, the disclosures may omit information related to quarterly interim periods that began on or before September 15, 2008. The Board decided that disclosures are required only for the current reporting period. The Board further decided that the comment period for the exposure document should end on January 15, 2009. The Board expects to issue a proposed FSP on or around December 23, 2008, to allow for a comment period of approximately 20 days.

Short-Term Project 3—Recoveries of Other-Than-Temporary Impairments (Reversals)

The Board decided to consider whether an entity should be permitted to reverse, through earnings, a previously recognized other-than-temporary impairment loss when evidence exists that a loss has reversed. The Board also decided that the scope of the project includes all debt securities classified as held-to-maturity and available-for-sale. The Board decided to coordinate such a change with the IASB to ensure the consistency of accounting standards internationally.

Short-Term Project 4—Clarification of the Embedded Credit Derivative Scope Exception in Paragraph 14B of Statement 133

The Board decided that FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, should be amended as follows:

Delete the first sentence of paragraph 14B to clarify that the scope exception for embedded credit derivatives applies only to the concentration of credit in the form of subordination of one financial instrument to another
Revise examples from FASB Statement No. 155, Accounting for Certain Hybrid Financial Instruments, and provide additional examples to clarify application of the scope exception.

The Board decided that this guidance and amending language will be provided as a Statement 133 Implementation Issue.

Effective Date, Transition, and Comment Period

The Board decided that the guidance should be effective for fiscal quarters beginning after December 15, 2008. Upon adoption of the guidance, an entity should assess only those preexisting contracts that were acquired or issued on or after the date of each reporting entity’s adoption of Statement 155, determining whether any of those contracts contain one or more embedded credit derivatives that, under the revised paragraph 14B, would no longer qualify for the scope exception in that paragraph. The provisions of paragraphs 12, 13, and 14A should be applied to such contracts at the date of adoption of the guidance to determine whether the embedded credit derivative is required to be separated from the host contract and accounted for separately.

At adoption, any difference between the total carrying amount of the individual components of the existing bifurcated hybrid financial instrument and the carrying amount of the combined hybrid financial instrument prior to the bifurcation should be recognized as a cumulative-effect adjustment to beginning retained earnings. An entity should separately disclose the gross gains and losses that make up the cumulative-effect adjustment, determined on an instrument-by-instrument basis. Prior periods should not be restated.

Further, the Board decided that if a contract is required to be separated into a host contract and a derivative instrument at adoption of the Implementation Issue and if the contract is a hybrid financial instrument, the entity may irrevocably elect to initially and subsequently measure that contract in its entirety at fair value (with changes in fair value recognized in earnings). The Board also decided that the fair value election should be determined on an instrument-by-instrument basis and supported by documentation completed by the end of the fiscal quarter of initial adoption.

The Board decided that the proposed Statement 133 Implementation Issue should be exposed for a comment period ending no earlier than February 6, 2009.