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.

January 14, 2009 Board Meeting

Leases. The Board discussed whether arrangements that are in substance the acquisition of an asset should be in the scope of the leases project. The Board also discussed issues related to lessor accounting.

The Board decided that the scope of the project should include arrangements that are leases in form but in substance are an acquisition of the leased asset. Some Board members noted that distinguishing an in-substance purchase from a right-to-use lease could be important in determining the amount and timing of revenue recognition by lessors. The Board decided to discuss this issue in the proposed Discussion Paper and ask questions to solicit input from constituents.

The Board decided that successful development of a right-of-use accounting model by lessees requires that it also develop a right-of-use model that would apply to all lessors (including sublessors). Accordingly, the Board rejected suggestions to limit the project’s initial scope to reporting by sublessors.

The Board discussed how a right-of-use model might be applied to lessors. The Board believes that a lessor would recognize an asset representing its right to receive payments during the lease term but did not decide whether a lessor should recognize a corresponding liability representing a performance obligation to permit use of the leased item over the lease term or derecognize the leased item. The Board also indicated the need to determine when (and how) revenue should be recognized including whether there are circumstances when a profit should be recognized upon delivery of the leased item.

The Board decided to include a discussion of lessor accounting issues in the proposed Discussion Paper.

Conceptual framework:.

Measurement
The Board discussed which possible measurement methods should be included in the conceptual framework and tentatively decided to include the following categories:

  1. Actual or estimated current prices (which will become past prices in future periods if an item is not remeasured)
  2. Actual past entry prices adjusted for interest accruals, depreciation, amortization, impairments, and similar things
  3. Other prescribed computations based on discounted or undiscounted estimates of future cash flows (which would include value in use and fair-value-based measurements, among other things).

Objective and qualitative characteristics
The Board redeliberated some of the issues arising from the FASB Exposure Draft, Conceptual Framework for Financial Reporting: The Objective of Financial Reporting and Qualitative Characteristics and Constraints of Decision-Useful Financial Reporting Information.

The Board decided to:

  1. Continue to use the term faithful representation to refer to the characteristic that had been labeled reliability in the existing framework.
  2. Continue to classify relevance and faithful representation as fundamental characteristics.
  3. Clarify that the components of faithful representation (neutrality, completeness, and freedom from error) are not absolutes. For example, the phrase freedom from error is not intended to imply that financial statements must be 100 percent accurate.
  4. Continue to classify verifiability, comparability, timeliness, and understandability as enhancing characteristics.
  5. Continue to describe materiality and cost as constraints on financial reporting.

Reporting entity
The Board redeliberated some of the issues arising from the FASB Preliminary Views, Conceptual Framework for Financial Reporting: The Reporting Entity.

The Board decided to:

  1. Continue to use a description of a reporting entity, rather than a definition of a reporting entity.
  2. Revise the description of a reporting entity to read as follows:
      3. A reporting entity is a circumscribed area of economic activity whose financial information has the potential to be useful to present and potential equity investors, lenders, and other capital providers in making decisions in their capacity as capital providers.
  3. Update the list of capital providers in the description of a reporting entity if any changes are made to the list of the primary users of financial information in Chapter 1, “The Objective of Financial Reporting.”
  4. Clarify that an entity that is currently inactive can be a reporting entity if it is capable of or authorized to conduct economic activities.

Implications of the Description of a Reporting Entity
The Board also tentatively affirmed the following decisions:

  1. A reporting entity need not be a legal entity.
  2. A legal entity could, but not necessarily would, meet the description of a reporting entity.
  3. A branch or segment of a legal entity could, but not necessarily would, meet the description of a reporting entity.

Group Reporting Entity
The Board tentatively affirmed its previous decision that control should be used as the basis for determining the composition of a group reporting entity. Consolidated financial statements based on a control entity model are appropriate for most reporting entities, but combined financial statements for entities under common control may be appropriate in some cases.

The Board tentatively decided that:

  1. Risks and rewards should not be used as a standalone model but observed that risks and rewards might be useful for implementing the controlling entity model in some circumstances.
  2. Possible models other than the controlling entity model and the common control model would not be part of the conceptual framework.

Consolidated and Parent-Only Financial Statements
The Board tentatively decided that:

  1. Consolidated financial statements are general purpose financial statements because they are most likely to provide decision-useful information to the greatest number of primary users.
  2. Parent-only financial statements of entities with subsidiaries are not general purpose financial statements. They are either special purpose financial statements or information to supplement general purpose financial statements.