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.

February 24, 2010 Board Meeting

Accounting for financial instruments: equity method. The Board discussed nonconsolidated equity investments accounted for under the equity method. The Board decided that an investor should apply the equity method of accounting if the investor has significant influence over the investee and the investment is considered related to the investor’s consolidated businesses. Otherwise, the investment would be measured at fair value with changes included in earnings. The Board directed the staff to develop the criteria for determining whether an investee is related to the investor’s consolidated businesses.

The Board decided that an entity may not elect the fair value option for equity investments that would be accounted for under the equity method under the decision reached above.


Accounting for financial instruments: scope. The Board decided that certain aspects of the classification and measurement guidance in the proposed Accounting Standards Update to be issued under this project would be effective for nonpublic entities with less than $1 billion in consolidated total assets with a delayed effective date. The Board decided that these exempted entities would be required to apply all classification and measurement guidance in the proposed Accounting Standards Update four years after the original effective date.

The Board decided that entities that qualify for the delayed effective date would measure the following financial instruments at amortized cost in their financial statements for the four-year period between the original effective date and the delayed effective date:
  1. Loans that would qualify for certain changes in fair value to be recognized in other comprehensive income under the classification and measurement guidance included in the proposed Accounting Standards Update
  2. Core deposit liabilities.
The Board also decided to require fair value disclosures for these loans in the notes to the financial statements in accordance with the exit price notion in FASB Accounting Standards CodificationTM Topic 820, Fair Value Measurements and Disclosures. The Board decided not to require disclosure of the remeasurement amount for core deposit liabilities in the notes to the financial statements.


Accounting for financial instruments: liabilities. The Board discussed the accounting for financial liabilities and how to address changes in an entity’s own credit risk of financial liabilities measured at fair value.

The Board affirmed their prior classification and measurement decisions on financial liabilities and decided to include separate presentation of significant changes in fair value related to changes in an entity’s creditworthiness.

Financial liabilities with a principal amount that are held for payment of contractual cash flows that do not contain embedded derivative features that would require bifurcation under Subtopic 815-15, Derivatives and Hedging—Embedded Derivatives, would be measured at fair value, with certain changes in fair value presented in other comprehensive income.

Financial liabilities with a principal amount that are held for payment of contractual cash flows that contain an embedded derivative that would require bifurcation under Subtopic 815-15 would be measured at fair value, with changes in fair value presented in net income.

For all financial liabilities measured at fair value, including financial liabilities without a principal amount and financial liabilities that are not held for payment of contractual cash flows, an entity would present on the face of the performance statement significant changes in fair value related to changes in the entity’s credit standing. That information would be presented separately for financial liabilities for which certain changes in fair value are presented in other comprehensive income and financial liabilities for which all changes in fair value are presented in net income. The amount presented on the performance statement would reflect only the change in the entity’s creditworthiness and not a change in the price of credit. The Board will discuss at a later meeting how changes in fair value related to an entity’s creditworthiness should be measured.


Disclosures about credit quality and the allowance for credit losses. [Revised 03/09/10] The Board redeliberated the following issues related to the Exposure Draft, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses:
  1. Definitions of portfolio segment and class of financing receivable
  2. Rollforward of the allowance for credit losses
  3. Rollforward of the carrying amount of financing receivables
  4. Disclosures about the credit quality of financing receivables
  5. Disclosures about modifications of financing receivables
  6. Fair value disclosures
  7. Scope
  8. Purchased credit impaired loans
  9. Loss contingency disclosure clarification
  10. Interim and annual reporting periods
  11. Effective date and transition
Definitions of portfolio segment and class of financing receivable

The Board decided to modify the definition of portfolio segment by removing the requirement to disaggregate portfolio segments based on impairment methodology. However, the Board decided to separately require an entity to disaggregate the ending balance of the allowance for credit losses based on impairment methodology. (See the decision on the rollforward of the allowance for credit losses.)

The Board decided to retain the definition of class of financing receivable as proposed, emphasizing that judgment will be required to apply that definition.

Rollforward of the allowance for credit losses

The Board affirmed its proposal that an entity should provide in the notes to the financial statements a rollforward of the allowance for credit losses by portfolio segment.

The Board decided that in addition to that rollforward, an entity would also be required to disclose, for each portfolio segment, the balance of the allowance for credit losses as of the reporting period date disaggregated based on impairment methodology and the related carrying amount of financing receivables. To disaggregate the required information based on impairment methodology, an entity should separately disclose amounts determined under FASB Accounting Standards Codification™ Subtopic 450-20, Loss Contingencies (generally includes items collectively evaluated for impairment), from amounts determined under Section 310-10-35, Receivables—Overall—Subsequent Measurement (generally includes items individually evaluated for impairment).

The Board decided not to require additional disclosure about partial chargeoffs of financing receivables by portfolio segment.

Rollforward of the carrying amount of financing receivables

The Board decided not to require disclosure of a rollforward of the carrying amount of financing receivables. Instead, the Board decided that a creditor would be required to disclose, by portfolio segment, the amount of any significant purchases of financing receivables during a reporting period separately from the amount of any significant sales of financing receivables during a reporting period.

Disclosures about the credit quality of financing receivables

The Board decided that an entity’s objective in providing credit quality disclosures is to provide information that enables a reader to understand how and to what extent management monitors the credit quality of its financing receivables on an ongoing manner.

The Board affirmed the proposed disclosure requirement in paragraph 13(b) of the Exposure Draft to provide quantitative and qualitative information about the credit quality of financing receivables. The Board decided, however, that to achieve the disclosure objective, an entity would be required to provide those quantitative and qualitative disclosures for all financing receivables, including financing receivables that are past due or impaired.

The Board decided to remove the proposed requirement to link internal risk ratings to external regulatory risk ratings. Rather, the Board decided to require a creditor who discloses internal risk ratings to also provide qualitative information on how those internal risk ratings relate to the likelihood of loss.

The Board also decided to expand the disclosures proposed in paragraphs 13(d) and 13(e) of the Exposure Draft so that they apply to all financing receivables, with one exception. Financing receivables deemed to be impaired under Section 310-10-35 (originally issued as FASB Statement No. 114, Accounting by Creditors for Impairment of a Loan) would be excluded from the disclosures proposed in paragraphs 13(d) and 13(e).

The Board decided to remove the proposed disclosure requirement in paragraph 13(g) of the Exposure Draft, which would require an entity to reconcile certain amounts disclosed in the proposed Statement.

Disclosures about modifications of financing receivables

The Board agreed that the objective for disclosures about modifications of financing receivables is to provide information enabling the reader to understand the nature and extent of those modifications. The Board decided to reconsider specific disclosures about modifications of financing receivables at a future meeting.

Fair value disclosures

The Board decided to remove the proposed requirement to disclose the fair value of loan receivables by portfolio segment from this project. The Board intends to consider additional fair value disclosures in its project on accounting for financial instruments.

Scope

The Board decided to modify the proposed scope of this project by excluding the following:
  1. Financing receivables measured at fair value or the lower of cost or fair value
  2. Promises to give, regardless of term.
The Board affirmed its proposal to exclude the following from the scope of this project:
  1. Accounts receivable with contractual maturities of one year of less that arose from the sale of goods or services, except for credit card receivables
  2. Unfunded lending commitments.
The Board affirmed its proposal to include lessor’s direct finance and sales-type lease receivables in the scope of the project. The Board decided to discuss whether leveraged leases should be included in the scope of this project at a future meeting.

The Board affirmed its proposal that the disclosure requirements would continue to apply to all entities.

Purchased credit impaired loans

The Board decided not to add specific disclosures for purchased credit impaired loans to this project.

Loss contingency disclosure clarification

The Board decided to specify that paragraphs 450-20-50-3 through 50-5 (originally issued as paragraph 10 of FASB Statement No. 5, Accounting for Contingencies) do not apply to recurring loss contingencies arising from a creditor’s normal estimation of its allowance for loan losses.

Interim and annual reporting periods

The Board affirmed its proposal that the final Update should be effective for both interim and annual reporting periods.

Effective date and transition

The Board decided that a public entity would be required to provide these disclosures beginning with interim and annual reporting periods ending after December 15, 2010. The Board decided to revisit the effective date for nonpublic entities at a future meeting.

Examples

The staff has updated the examples in the Exposure Draft to reflect decisions reached during today’s meeting. These examples are available on the FASB’s website .

Please note that these examples do not represent official positions of the Board, are not meant to be prescriptive, and do not represent required formats. They are provided solely for convenience of the FASB’s constituents who are following this project.