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 17, 2010 FASB/IASB Joint Videoconference Board Meeting

Insurance contracts. In this session the Boards discussed risk adjustments in the proposed measurement of insurance contracts, including a brief analysis of methodologies that could be used to calculate risk adjustments. To support this discussion on risk adjustment, the Boards also discussed the role of risk adjustments in option pricing models.

The purpose of this discussion was educational. Consequently, no decisions were reached.

Next Steps

The Boards will continue their discussion of this project at their joint meeting on March 22.


Leases. The Boards discussed:
  1. Lessee disclosure requirements
  2. Lessor transitional provisions
  3. Measurement at initial recognition
  4. Lessor accounting for residual value guarantees.
Lessee Disclosure Requirements

The Boards tentatively approved a set of disclosure requirements for the forthcoming Exposure Draft.

An entity should disclose the quantitative and qualitative financial information that identifies and explains the amounts recognized in its financial statements arising from lease contracts. That disclosure should include:

  1. A general description of the lessee’s leasing activities, including disaggregated information about its leasing activities (e.g., by nature or function).
  2. If a lessee applies a simplified form of lease accounting for short-term leases, that fact should be disclosed. The lessee should also disclose the amounts recognized in the financial statements under the simplified model.
  3. If a lessee enters into a sale and leaseback transaction, the lessee should disclose that fact, any material terms and conditions related to that transaction, and any gains or losses arising from that transaction, separately from other types of sales of assets.
  4. A lessee should provide a reconciliation between opening and closing balances for its right-of-use assets and its obligation to pay rentals.
  5. A lessee should provide a narrative disclosure of its assumptions and estimates on the amortization method used, options, contingent rentals, residual value guarantees, and the discount rate used.
  6. A lessee should disclose a maturity analysis of the gross obligation to pay rentals showing the remaining contractual maturities and total obligations. The lessee would also have to reconcile the total gross obligation to the total obligation to pay rentals presented in the financial statements. In addition, the lessee would disclose a maturity analysis on an annual basis for the first five years and a lump-sum figure for the remaining amounts.
  7. A lessee should disclose the quantitative and qualitative financial information that helps users to evaluate the nature and extent of the amount, timing, and uncertainty of future cash flows arising from lease contracts, and the way in which the lessee manages those uncertainties.
The Boards also tentatively decided not to require the fair value disclosures of a lessee’s obligation to pay rentals.

Lessor Transitional Provisions

The Boards tentatively decided:
  1. To require a lessor to 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 performance obligation should be measured on the same basis as the receivable.
  2. The original rate that the lessor is charging the lessee should be used to discount the lease payments.
  3. A lessor should reinstate previously derecognized leased assets at depreciated cost, adjusted for impairment and revaluation (IFRS preparers only).
  4. For IFRS preparers, transition disclosures should be required in accordance with the guidance in IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, without the disclosure of adjusted basic and diluted earnings per share.
Measurement at Initial Recognition

The Boards tentatively decided that initial measurement of assets and liabilities arising in lease contracts should be determined at the inception of the lease.

Lessor Accounting for Residual Value Guarantees

The Boards tentatively decided that:
  1. The lease receivable recognized by the lessor would include amounts payable under a residual value guarantee if the amount could be measured reliably.
  2. The receivable would be measured using an expected outcome technique; however, not every possible scenario would need to be taken into account when measuring the receivable.
  3. The carrying amount of the receivable would be reassessed at each reporting date if any new facts or circumstances indicate that there is a material change in the receivable.
  4. Any change in the receivable arising from a change in amounts payable under a residual value guarantee would be treated as an adjustment to the lessor’s receivable and performance obligation, consistent with the Boards’ tentative decision on the accounting for contingent rentals.
  5. Residual value guarantees from an unrelated third party would be accounted for in accordance with the accounting for other guarantees.