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.

November 12, 2008 Board Meeting

FAS 140 and FIN 46(R) disclosure requirements. The Board discussed the issues identified during the comment period of the proposed FSP FAS 140-e and FIN 46(R)-e, Disclosures about Transfers of Financial Assets and Interests and Variable Interest Entities. The Board directed the staff to proceed to a draft of a final FSP for vote by written ballot.

General Comments

Issue 1—Rules versus Principles-Based Disclosures

The Board decided to maintain both the disclosure principles and the detailed disclosure requirements. The Board asked the staff to draft the final FSP in a way that emphasizes the disclosure principles and clarifies the intent of the specific disclosure requirements.

Issue 2—Consideration of Implicit Arrangements

The Board decided to modify the requirement to disclose implicit arrangements. For the Statement 140 disclosure requirements in the FSP, the Board decided to require the consideration of all available evidence, such as explicit written arrangements, communications made between the transferor and the transferee or its beneficial interest holders, and unwritten arrangements customary in similar transfers.

For the Interpretation 46(R) disclosure requirements in the FSP, the Board decided to clarify that the term implicit arrangements in the FSP is consistent with the definition of implicit variable interests in FSP FIN 46(R)-5, Implicit Variable Interests under FASB Interpretation No. 46 (revised December 2003).

Issue 3—Aggregation Principle

The Board decided to change the proposed requirement that an entity report aggregated information for similar transfers and similar entities if further disaggregating the disclosure would not provide useful incremental information. The Board decided to change the wording from useful incremental information to more useful information and to clarify in the basis for conclusions that it is not intended to be a lower threshold than materiality.

Issue 4—Liquidity Guarantees and Other Commitments Provided by Third Parties

The Board decided to encourage, rather than require, that an entity disclose liquidity guarantees and other commitments made by third parties. The Board noted that such disclosures would likely be made voluntarily if the data are available, because an entity may be motivated to disclose the third-party guarantees as a reduction of its own risks.

Issue 5—Examples

The Board decided not to provide specific examples in the FSP. The Board directed the staff to incorporate, at appropriate places within the FSP, the disclosure objective into the specific disclosure requirements or to provide further guidance as necessary. Additionally, the Board decided to include a reference to the April 2008 Senior Supervisors Group Report, Leading-Practice Disclosures for Selected Exposures, within the basis for conclusions, as one potential source a preparer can look to for examples.

Issue 6—International Convergence

The Board decided that the project should proceed and should not be delayed. The Board affirmed its decision to continue to work with the IASB in completing long-term joint projects regarding these issues.

Comments Specific to Statement 140 Disclosures

Issue 7—Scope of the Disclosures Required of Transferors That Have Continuing Involvement

The Board decided to require certain disclosures when a transferor has a continuing involvement without a threshold for significance. The Board also decided to provide a broad principle that would indicate that the level of disclosures necessary to meet the objectives of the FSP will be different depending on the facts and circumstances related to the continuing involvement.

Issue 8—Exclusion of Certain Derivatives from the Definition of Continuing Involvement

The Board decided to clarify which specific disclosures are required when a transferor has continuing involvement in a securitization or structured financing arrangement accounted for as a sale and the particular form of continuing involvement would already be disclosed to comply with other U.S. GAAP disclosure requirements. The Board decided that if the transferor’s form of continuing involvement is already disclosed to comply with other U.S. GAAP, the entity should provide sufficient information with the disclosures of FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, to enable financial statement users to assess the reasons for the continuing involvement and the related risks to which the transferor continues to be exposed after the transfer. The Board also decided that if those disclosures meet the principles of the disclosures required by the final FSP, completion of specific related disclosures in the FSP would not be required.

The Board also decided that if information about the continuing involvement is provided in more than one note to the financial statements, the entity should provide a cross reference between the separate notes to the financial statements to allow a financial statement user to understand the risks retained in the transfer.

Issue 9—Fair Value Disclosures in Statement 140

The Board decided to eliminate the disclosures about transfers of financial assets that are duplicative with the disclosures of FASB Statement No. 157, Fair Value Measurements, and to also eliminate the requirement to disclose model validation techniques for servicing assets and liabilities because it is not required by Statement 157.

Issue 10—Sensitivity Analysis

The Board decided to maintain the existing disclosure requirement that the sensitivity analysis disclosures would only be required for interests that continue to be held by a transferor and for servicing assets and servicing liabilities.

Issue 11—Disclosures for Secured Borrowings

The Board decided to limit the required disclosures for transfers accounted for as secured borrowings to the carrying amount and classification of assets and associated liabilities recognized in the transferor’s statement of financial position, and qualitative information about the relationships between those assets and associated liabilities.

The Board directed the staff to reorganize the disclosure requirements.

Issue 12—Transfers to a Special-Purpose Entity

The Board decided to modify the scope of the disclosure requirements from financial assets transferred to a special-purpose entity to entities whose activities are primarily related to securitization or other forms of asset-backed financings.

Issue 13—Gain on Sale Disclosures

The Board decided to retain the existing guidance in Statement 140 to disclose the total gain or loss from sales of financial assets. The Board also decided to require disclosure of the characteristics of the transfer and a description of the transferor’s continuing involvement with the transferred financial assets.

Issue 14—Disclosures for a Transferor That Has No Continuing Involvement

The Board decided that the disclosure requirements would not apply when a transferor does not have any continuing involvement with the transferred financial assets.

Issue 15—Disclosures Applicable to Guaranteed Mortgage Securitizations

The Board decided that not to indicate whether the disclosures specific to Statement 140 apply to guaranteed mortgage securitizations.

Comments Specific to Interpretation 46(R) Disclosures

Issue 16—Level of Disclosures for Consolidated Variable Interest Entities

The Board decided not to remove the proposed disclosures for primary beneficiaries, other than the disclosure to separately provide the fair value of a consolidated variable interest entity’s assets and liabilities.

Issue 17—Sponsors

The Board decided not to define the term sponsor.

Issue 18—Methodology for Determining Whether the Enterprise Is (or Is Not) the Primary Beneficiary

The Board decided to clarify the disclosure requirement to explain its methodology for identifying the primary beneficiary of a variable interest entity, including significant factors, assumptions, and judgments made in determining the primary beneficiary of a variable interest entity. The Board also decided to remove the proposed requirement to disclose whether a different assumption or judgment could have reasonably been made that would result in a different conclusion.

Issue 19—Disclosure of an Enterprise’s Estimated Exposure to Loss

The Board decided to replace the proposed requirement to disclose estimated exposure to loss with a requirement to provide a tabular, side-by-side comparison of the entity’s maximum exposure to loss with the liability recognized in its financial statements. The Board also decided that an entity should supplement that tabular comparison with qualitative and quantitative information to explain the differences between the two amounts.

Issue 20—Scope Exception for Primary Beneficiaries That Also Hold a Majority Voting Interest

The Board decided to keep the scope exception as it currently exists in Interpretation 46(R), clarifying that the scope exception applies if the activities of the variable interest entity are not primarily related to securitization or other forms of asset-backed financings or single-lessee leasing arrangements. The Board noted that the change proposed in the proposed FSP would require an entity to evaluate all subsidiaries to determine if they meet the definition of a variable interest entity and whether that entity meets the definition of a business. The Board believes this may create an undue burden on a reporting entity because an entity generally does not evaluate whether a consolidated entity is a variable interest entity if the consolidating entity concludes it must be consolidated pursuant to voting interests or arrangements, regardless of the sufficiency of the related entity’s equity.

Issue 21—Significant to the Variable Interest Entity or Reporting Enterprise

The Board decided not to clarify whether the determination of the significance of a variable interest entity should be considered as significant in relation to the variable interest entity or the reporting enterprise.

Comments Specific to Nontransferor Disclosures

Issue 22—Scope of Nontransferor Disclosures

The Board decided to modify the scope of the proposed disclosure requirements for nontransferors with a significant variable interest in a qualifying special-purpose entity, such that entities that are sponsors or servicers with a variable interest in a qualifying special-purpose entity will be required to make the proposed disclosures.

Effective Date and Transition

Issue 23—Effective Date and Transition

The Board decided that the FSP will be effective for fiscal periods ending after December 15, 2008, with earlier application of all or some disclosure requirements encouraged. The Board also decided to clarify that if the FSP is adopted in a period other than an annual reporting period, the FSP will apply to that initial interim period and each annual reporting period thereafter.

Mergers and acquisitions by a not-for-profit organization. The Board substantially completed redeliberations of its October 2006 Exposure Drafts, Not-for-Profit Organizations: Mergers and Acquisitions, and Not-for-Profit Organizations: Goodwill and Other Intangible Assets Acquired in a Merger or Acquisition, and directed the staff to begin drafting a final Statement. That Statement will provide guidance on accounting for both mergers of not-for-profit organizations and acquisitions by not-for-profit organizations. It also will amend FASB Statement No. 142, Goodwill and Other Intangible Assets, to make that Statement fully applicable to not-for-profit organizations.

The Board affirmed its decision that a merger of two or more not-for-profit organizations involves the creation of a newly formed entity as of the merger date. It clarified that in applying the carryover basis of accounting, the merged entity’s statement of activities and statement of cash flows for its first period should (1) reflect the combined amounts of the merging entities’ net assets (in total and by classes of net assets) and cash as of the merger date in its opening amounts and (2) include activity from the merger date through the end of the fiscal period. The opening amounts should be as adjusted to conform the individual accounting policies of the merging entities at the merger date.

In addition, the Board decided to:

  1. Require that a newly merged public not-for-profit organization include specified pro forma premerger information as supplementary information.

  2. Require certain disclosures for mergers of not-for-profit organizations and acquisitions by not-for-profit organizations. (A draft of those disclosures is available on the FASB website.)

  3. Require that:

    1. Previously recognized goodwill assigned to a reporting unit predominantly supported by contributions and returns on investments be written off as a change in accounting principle and presented, as proposed, as a separate line item in the statement of activities.

    2. All other previously recognized goodwill be subject to the transitional impairment evaluation of Statement 142, the presentation requirements as proposed and, subsequently, to the provisions of Statement 142.

  4. Require that all not-for-profit organizations apply the final Statement in the first fiscal year beginning after December 15, 2009, and not provide a delayed effective date for small organizations.

  5. Prohibit early adoption of the final Statement.