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.

March 23, 2009 FASB/IASB Joint Board Meeting

Work plan overview. Work plan overview. In February 2006, the Boards issued a Memorandum of Understanding (MoU) setting out priorities within their joint work plan. In September 2008, they issued a progress report on the MoU. At this meeting, the Boards reviewed progress on the projects covered by the MoU. No decisions were made.

Financial statement presentation. The Boards discussed the design of the field test of the presentation model proposed in the October 2008 Discussion Paper, Preliminary Views on Financial Statement Presentation.  As part of that field test, participant companies are recasting two years of financial statements using the principles and application guidance in the Discussion Paper and completing a survey about that recasting exercise.  The staff provided a preliminary overview of the results received thus far and of quantitative information about how the participant companies’ financial statements changed as a result of applying the proposed model.  Once all of the field test companies have completed the recasting exercise, analysts will review both recast and non-recast financial statements and respond to a survey.  After the analyst portion of the field test is complete and all the results are summarized, the Boards will discuss the field test results at a public meeting.  The current plan is to hold that meeting in July 2009 and to begin redeliberating the proposed presentation model in September 2009.

Consolidation/derecognition. The Boards discussed ways they might meet their Memorandum of Understanding (MOU) commitments relating to derecognition and consolidation.

The Boards noted that the FASB would complete and issue final Statements amending FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, in 2009, with expected effective dates of 2010. The Boards also noted that the IASB would complete and issue an Exposure Draft that would replace existing guidance on derecognition of financial instruments. The IASB has already issued an Exposure Draft of proposed amendments to guidance on consolidation.

The Boards decided that they would deliberate the issues raised by constituents in comment letters with the objective of reaching common conclusions following the close of the comment period on the IASB’s two Exposure Drafts. At the conclusion of those redeliberations, the IASB would issue guidance in the form of final standards for derecognition and consolidation. The FASB would publish Exposure Drafts for public comment on both topics.


March 24, 2009 FASB/IASB Joint Board Meeting

Financial instruments—improvements to recognition and measurement. The Boards discussed:

  1. The objectives of the project

  2. Potential measurement methods for financial instruments

  3. Potential characteristics for categorizing financial instruments.

The Boards tentatively agreed that the objective of the project is to replace their respective financial instruments standards with a common standard that will significantly improve the decision usefulness of financial instrument reporting for users of financial statements. The Boards believe that simplification of the accounting requirements for financial instruments should be an outcome of this improvement. The Boards tentatively agreed that although the project objective is comprehensive, the project should be completed expeditiously.

The Boards tentatively agreed to consider at a future meeting three potential measurement methods:

  1. Fair value—defined as an exit price in FASB Statement No. 157, Fair Value Measurements, and as will be defined in the forthcoming IASB Exposure Draft on fair value measurements

  2. Another remeasurement method

  3. Amortized cost.

At a future meeting, the Boards will define the other remeasurement method including the nature of the anticipated cash flows and the discount rate. To help in categorizing which, if any, financial instruments should be subject to each of those measurement methods, the Boards discussed the following possible criteria:

  1. Characteristics of the instrument, such as cash flow variability

  2. Business model of the entity

  3. The entity’s intent and/or ability to trade the instrument.

Conceptual framework. The Boards made the following decisions:

  1. Each chapter will be published as soon as it is completed.

  2. The reporting entity concept will be the subject of a separate chapter.

  3. Each framework will maintain its current hierarchical status (see IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and FASB Statement No. 162, The Hierarchy of Generally Accepted Accounting Principles).

  4. Current phases of this project will continue to focus on business entities (with limited consideration of how the concepts may apply to other types of entities). A later phase will consider whether modifications are needed to address issues or circumstances unique to other types of entities, beginning with not-for-profit entities.

In addition, the IASB decided tentatively to amend IAS 8 to reflect the new qualitative characteristics as agreed by the Boards. The IASB will expose the proposed amendment for public comment.

Loan loss provisioning. In the current financial crisis, some have advocated that financial reporting standards should require new forms of accounting for loan losses, for example, ‘dynamic provisioning’ or expected loss accounting. At this meeting, the Boards commenced a discussion on how to account for loan losses. They explored and compared the incurred loss model and an expected loss model. Both models:

  1. Use amortized cost conventions rather than fair value; and

  2. Attempt to identify losses on existing loans, not losses that might exist on future loans.

The Boards directed the staff to explore further the dynamic provisioning model used by the Spanish Central Bank.

The Boards noted that prudential regulators might require financial institutions to reserve amounts of capital. The Boards observed that those amounts would result from restrictions on capital or appropriations of profit and, thus, would not appear in the statement of comprehensive income (or separate income statement, if presented). The Boards also noted that any display in the financial statements of such restrictions or appropriations needs to be transparent.

The Boards also noted that loan loss provisioning is relevant to the project on financial instruments—improvements to recognition and measurement (see above) and that future work on loan losses should be part of that project.

Fair value measurement. The Boards received an update on the IASB’s project on fair value measurement. This session was educational and no decisions were made. The IASB has completed its deliberations, subject to any matters that arise in drafting. The IASB expects to publish an exposure draft early in the second quarter of 2009.