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 an Accounting Standards Update.

December 8, 2010 FASB/IASB Joint Videoconference Board Meeting

Accounting for financial instruments: impairment. The Boards continued their discussion of the following three methods of accounting for credit impairment presented at the November 17, 2010 joint meeting:
  1. Alternative 2: Immediate recognition of losses expected to occur over a period shorter than the expected life of the loan (for example, a reliable period in the future)
     
  2. Alternative 4: Recognition of lifetime expected credit losses using a time-proportionate approach for a good book and full recognition of lifetime expected losses for a bad book
     
  3. Alternative 5: Same as Alternative 4 but with a mechanism to accelerate recognition of expected losses in a good book to accommodate “front loaded” expected loss recognition patterns.
The Boards also discussed an additional alternative (Alternative 4A), which would be the same as Alternative 4 but would require entities to calculate a 12-month expected loss estimate for the good book. The higher of that 12-month expected loss estimate and the time-proportionate allowance balance calculated under Alternative 4 for the good book would be recognized as the allowance amount for the good book. This would mean that the 12-month expected loss estimate would establish a floor for the good book allowance. The amount of credit impairment recognized on the bad book under Alternative 4A would be the same as under Alternative 4.

The Boards tentatively indicated support for Alternative 4A but directed the staff to develop a principle for determining the estimation period for the expected losses to determine the good book floor rather than use a bright-line threshold such as 12 months. The Boards directed their staff to perform additional outreach it could use to evaluate the operationality of Alternative 4A. Alternative 4A will be further discussed at the next joint Board meeting.