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.

March 16, 2010 FASB/IASB Joint Videoconference Board Meeting

Revenue recognition. The Boards discussed disclosure and contract costs.

Disclosure

The Boards tentatively approved a revised set of disclosure requirements for the forthcoming Exposure Draft, including requirements for an entity:
  1. To disaggregate the amount of revenue recognized and clarify how that disaggregation relates to amounts presented or disclosed in accordance with other standards
     
  2. To disclose the amount and expected timing of the satisfaction of its remaining performance obligations in contracts with an original duration of more than one year.
The revised disclosure proposal can be found on the IASB website in the observer notes for the meeting.

Contract Costs

The Boards tentatively decided that:

  1. An entity should recognize the following costs as expenses when incurred:
    1. The costs of obtaining a contract (e.g., selling, advertising, and marketing costs)
    2. Costs that relate to satisfied performance obligations in the contract (i.e., costs relating to goods and services already transferred)
    3. Abnormal amounts of wasted labor, material, or other fulfilment costs.
       
  2. If the costs incurred in fulfilling a contract do not give rise to an asset eligible for recognition in accordance with other standards (e.g., inventory; property, plant, or equipment; software), an entity should recognize an asset if the costs:
    1. Generate or enhance a resource that the entity will use to satisfy performance obligations in a contract
    2. Relate directly to a contract (or anticipated contract)
    3. Are probable of recovery under a contract.
       
  3. An entity should amortize the asset as the goods or services to which the asset relates are transferred to the customer.
     
  4. An entity should test the asset for impairment by comparing its carrying amount to the amount recoverable under the contract (i.e., the amount of consideration allocated to remaining performance obligations less the direct costs of satisfying those performance obligations).
The IASB tentatively decided to remove from IAS 2, Inventories, the guidance on inventories of a service provider.

Next Steps

At the joint meeting next week, the Boards will consider how an entity should account for a contract that includes some performance obligations that are within the scope of the revenue standard and other performance obligations that are within the scope of other standards.


Cross cutting issues. The Boards discussed acquisition costs for insurance contracts.

The FASB tentatively affirmed its previous tentative decision that an insurer:
  1. Should recognize all acquisition costs as an expense when incurred
     
  2. Should not recognize any corresponding amount of the premium as revenue (or income) at inception.
The IASB tentatively decided to exclude from the initial measurement of the residual margin an amount equal to the incremental acquisition costs. The staff will investigate whether that tentative decision is best implemented by either of the following:
  1. Excluding the acquisition costs from the premium to which the contract liability is calibrated
     
  2. Including the acquisition costs in the contract cash flows at the inception of the contract.
The Boards noted that some acquisition costs may be recoverable in some circumstances either from the policyholder or from third parties. The Boards asked the staff to consider whether investigating those circumstances would make it easier for the Boards to reach a common approach to acquisition costs.

Next steps

The Boards will continue their discussion of the insurance contracts project at the joint Board meeting on March 17.


Consolidations. At their January 2010 joint Board meeting, the IASB and the FASB tentatively decided that, when assessing control of entities controlled through voting rights:
  1. A reporting entity that holds more than half of the voting rights in an entity meets the power element of the control definition, in the absence of other arrangements.
     
  2. A reporting entity (with less than half of the voting rights in an entity) that has the legal or contractual ability to direct those activities of the entity that significantly affect the returns meets the power element of the control definition.
At that meeting, the IASB tentatively decided that a reporting entity with less than half of the voting rights meets the power element of the control definition in situations in which the reporting entity holds significantly more voting rights than any other party or organized group of shareholders, and in which the other shareholdings are widely dispersed. The FASB tentatively decided that such a reporting entity must have demonstrated that it has directed the activities of the entity that significantly affect the returns in order to meet the power element of the control definition.

At the March meeting, the staff presented the Boards with an analysis of power to help them reconcile their views. Some Board members expressed the view that a reporting entity with less than half of another entity's voting rights must demonstrate that it directs the activities of the other entity. Others expressed the view that there must merely be evidence that the reporting entity has the ability to direct the activities of the other entity, without the need to demonstrate that it actually does so or has done so. The Boards asked the staff to develop additional guidance to help them clarify what type of evidence would be required to demonstrate that an entity has power. This will be discussed by the Boards next week.

The Boards will continue to discuss power, agency relationships, structured entities, and disclosures at their joint meeting to be held on Tuesday, March 23.