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.

January 13, 2010 Board Meeting

Accounting for financial instruments.

The Board discussed aspects of a proposed approach to accounting for financial instruments.

The Board discussed comments it received from constituents on a draft of the core principle for determining credit impairment it developed at its October 21, 2009 Board meeting. The Board affirmed that the core principle will propose that credit impairments be based on all available information relating to past events and existing conditions. The Board also decided to clarify that although near-term expectations should not be considered in assessing a financial asset for impairment, the implications of past events and existing conditions on the current and future collectability of the financial asset should be considered.

The Board also decided that the proposed approach will include the following elements.

1. For financial assets that are classified in the fair value through other comprehensive income category, an entity would determine the amount of interest income to recognize by multiplying the amortized cost less cumulative credit impairments by the effective interest rate. An entity would record cash receipts in excess of accrued interest as an increase in the allowance and not as interest income. To the extent that the allowance account exceeds an entity’s estimate of expected losses, the difference would be recognized in income as a recovery.
    
2. An entity would present purchased financial assets on a “gross basis” in the statement of financial position, meaning it would separately present an allowance for its expectations of credit losses inherent in the instrument at acquisition. This would represent a change in business combination accounting when appropriate amendments are made to that guidance.
    
3. The effective interest rate for a purchased financial asset would be the rate that equates the purchase price of the financial asset to its par value reduced by the credit loss expected by the purchaser at acquisition.
    
4. To increase comparability among entities, the Board decided to define a write-off as “a reduction in the carrying amount of a financial asset due to uncollectibility. A financial asset is considered uncollectible if the entity has no reasonable expectations of recovery.”
    
5. An entity should cease recognizing income on a financial asset (place it on an nonaccrual status) only if the entity’s expectations about cash flows not expected to be collected would indicate that the overall yield on the financial asset will be negative (for example, if the gross cash flows expected to be collected are less than the original principal amount).