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 5, 2010 Joint FASB/IASB Videoconference Board Meeting

Leases. At the October 2009 joint meeting, the Boards tentatively decided to exclude from the scope of the proposed new leases requirements contracts that represent the purchase or sale of the underlying asset. At this meeting, the Boards discussed when a contract is the purchase or sale of the underlying asset.

The Boards tentatively decided that:

  1. Contracts that transfer control of the underlying asset should be excluded from the scope of the proposed new leases requirements.
  2. The proposed new leases requirements should provide indicators to help a reporting entity determine whether control has transferred.
  3. Management of the reporting entity should exercise judgment and consider all relevant facts and circumstances when determining whether control of the underlying asset has been transferred.
  4. Situations where control of the underlying asset has normally been transferred include:
    1. Contracts where the title to the underlying asset automatically transfers
    2. Contracts that include a bargain purchase option.

The Boards instructed the staff to provide additional analysis on the definition of control, how control would be assessed, and other possible indicators of control in the context of a lease contract.


Insurance contracts.  The Boards discussed:
  1. Whether to account for insurance, investment, and service components included in an insurance contract as if those components were separate contracts (unbundling)
  2. Presentation of the statement of comprehensive income3. Derivatives embedded within a host insurance contract.
Unbundling

The Boards discussed whether to account for components of an insurance contract as if those components were separate contracts (that is, unbundle those components). The IASB decided tentatively that, for recognition and measurement, an insurer should:
  1. Unbundle a component of an insurance contract if it is not interdependent with other components of that contract
  2. Not unbundle a component that is interdependent.
The FASB decided tentatively that if unbundling is not required for recognition and measurement, it should not be a permitted option. The FASB asked staff to clarify further how unbundling for recognition and measurement relates to (1) the definition of an insurance contract and the scope of the proposed standard, (2) the presentation models for the performance statement, and (3) bifurcation of embedded derivatives.

Presentation of the Statement of Comprehensive Income

The Boards discussed five models for the presentation of the statement of comprehensive income for insurance contracts and:
  1. Tentatively rejected a model that recognizes revenue on the basis of written premiums (rather than recognizing revenue as the insurer performs under the contract)
  2. Asked the staff to clarify further the remaining models.
Embedded Derivatives

The Boards discussed two approaches to measuring derivatives embedded in insurance contracts:
  1. Measure at fair value (using existing guidance on when to bifurcate)
  2. Measure consistently with the measurement used for the host insurance contract
Views diverged and no clear consensus emerged. The Boards will return to the topic of embedded derivatives at a future meeting.

Next Steps

The Boards will continue their discussion of this project at their joint meeting in January.