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.

June 9, 2010 FASB Board Meeting

Insurance contracts. The Board discussed a premium allocation approach (an unearned premium approach) intended to simplify accounting for certain short-term insurance contracts. The Board tentatively decided that:
  1. The proposed model would require an insurance entity to apply the premium allocation approach to insurance contracts. In the future, the Board will discuss the factors relevant for determining when the premium allocation approach would apply. Those factors will include:
    1. A short-term coverage period, which needs to be further defined
    2. No significant embedded derivatives (options or guarantees)
    3. The type of insured event.
       
  2. The claims liability should be discounted unless the effect is not material.
The Board also discussed the need for a liability adequacy test (on the unearned premium liability).

The Board asked the staff to provide additional information about:
  1. The appropriate coverage period and type of insured events for an insurance contract to qualify for the premium allocation approach.
  2. The effect of a retrospective rating feature on an insurance contract otherwise eligible for the premium allocation approach.

Disclosures about credit quality and the allowance for credit losses. The Board discussed several issues related to the final Accounting Standards Update on disclosures about the credit quality of financing receivables and the allowance for credit losses.

Disclosures about Purchased Credit Impaired Loans

The Board affirmed that an entity should provide disclosures about credit quality indicators for purchased credit impaired loans (those loans accounted for under Subtopic 310-30, originally issued as AICPA Statement of Position 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer). An entity should not, however, include purchased credit impaired loans in its disclosures about loans on nonaccrual status or past due receivables. In addition, an entity should not include purchased credit impaired loans accounted for in pools in its disclosures about modified financing receivables.

The Board also affirmed that for each portfolio segment, the end-of-period balance of the allowance for credit losses and the related receivables should be disaggregated into three parts:
  1. Loans collectively evaluated for impairment
  2. Loans individually evaluated for impairment
  3. Purchased credit impaired loans.
Inclusion or Exclusion of Impaired Loans in Aging Disclosures

The Board decided that an entity should include loans deemed impaired under Section 310-10-35 (individually evaluated for impairment) in the disclosures about past due aging analysis, amounts past due 90 days or more and still accruing, and amounts on nonaccrual status.

Troubled Debt Restructurings and Other Significant Modifications

The Board agreed that the disclosures about modifications should be provided for modifications that involve a concession related to credit quality. The Board affirmed that the disclosures about modifications should apply to modifications of lease receivables.

Effective Date

The Board decided a public entity would be required to provide the following disclosures for interim or annual periods beginning on or after December 15, 2010:
  1. The rollforward of the allowance for credit losses
  2. Disclosures about modifications of financing receivables.

Leases. The Board discussed the accounting for leveraged leases in relation to the joint leases project. The Board tentatively decided that lessors should account for leveraged leases consistent with the proposed new leases requirements. That is, there would not be a separate lease model for leveraged leases.

The Board also tentatively decided that lessors would apply the same transition requirements to current leveraged leases as is required by all other leases under the proposed new leases requirements. Lessors would recognize and measure all outstanding leases as of the date of initial application of the proposed new leases requirements using a simplified retrospective approach. Under that approach, the lessor’s receivable would be measured at the present value of the remaining lease payments. The lessor’s performance obligation would be measured on the same basis as the receivable.

The Board will continue its discussion of this project at the joint Board meeting in June.