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 22, 2010 FASB/IASB Joint Board Meeting

Fair value measurement 

Disclosures about fair value measurements

The Boards tentatively decided:

1. To define “class” on the basis of the following principles:
    
   1. An entity should determine the appropriate classes of assets and liabilities based on the nature, characteristics and risks of the assets and liabilities, and their classification in the fair value hierarchy.
   2. A class of assets and liabilities will often require greater disaggregation than the entity's line items in the statement of financial position.
   3. Judgment is needed to determine the appropriate classes of assets and liabilities.
       
2. Not to require an entity to disclose information about the change in the nonperformance risk of a nonfinancial liability.
    
3. To require an entity to disclose its policy for determining when transfers between levels of the fair value hierarchy are recognized.
    
4. To require an entity to disclose information about fair value measurements only after initial recognition.
    
5. For assets and liabilities that are recognized at fair value at each reporting period, to require an entity to disclose a reconciliation of activity within Level 3 of the fair value hierarchy and information about transfers between Levels 1 and 2. For assets and liabilities remeasured at fair value only in specific circumstances, an entity does not need to disclose this information.
    
6. To require an entity to disclose fair value information by level in the fair value hierarchy for items that are not measured at fair value in the statement of financial position.
    
7. Not to include guidance for assessing the significance of an input or of significant changes in fair value.

1. Both lessors and lessees would be required to evaluate whether the lease payments should be allocated between service and lease components, considering all concurrently negotiated contracts with a third party.
    
2. A lessor would be subject to the revenue recognition requirements regarding the identification of separate performance obligations within an arrangement. That is, if the service component is not considered distinct, total payments under the arrangement should be accounted for as the lease. If the service component is considered distinct, total payments under the arrangement should be allocated between the service and lease components using the same principles as those proposed in the revenue recognition project.
    
3. The lessee’s identification of distinct components within an arrangement and measurement of the allocation between distinct service and lease components within an arrangement would be based on the same principles used by the lessor. The Boards noted that if the proposed revenue recognition guidance is incorporated into the proposed new leases guidance, some language changes would be necessary.
    
4. If the lessor or lessee is unable to allocate the total payments among the service and lease components of an arrangement, the entire arrangement should be considered and accounted for as a lease.
    
5. If the total payments under an arrangement that contains both lease and service components change after the inception of the lease (e.g., term options or contingent rentals), an entity would first determine whether the entire change is directly attributable to either the lease or the service component. If it is unable to do so, then the change in total consideration should be allocated on a pro rata basis to the various contract components in the same proportion as determined at contract inception.
    
6. Lessees and lessors would be required to bifurcate all arrangements that contain both service and lease components and apply the transition requirements to the lease components on the transition date. That is, there would be no special transitional provisions for existing arrangements.

1. That compensation rather than indemnification be used in the definition of an insurance contract in describing the benefit provided to the policyholder
2. That the guidance in IFRS 4 be used in determining whether insurance risk is significant, subject to matters discussed below.

1. To change the factors considered in evaluating the significance of insurance risk from absolute amounts to present values
2. To amend the guidance in IFRS 4 to explain that contractual terms that delay timely reimbursement to the policyholder can significantly reduce insurance risk, so that some contracts containing such terms might not meet the definition of an insurance contract.

1. The IASB expressed an initial preference for considering the range of possible outcomes.
2. The FASB expressed an initial preference for considering whether there are outcomes in which the present value of the net cash outflows can exceed the present value of the premiums.

1. Warranties issued directly by a manufacturer, dealer, or retailer
2. Residual value guarantees embedded in a lease
3. Residual value guarantees provided by a manufacturer, dealer, or retailer
4. Employers' assets and liabilities under employee benefit plans and retirement benefit obligations reported by defined benefit retirement plans
5. Contingent consideration payable or receivable in a business combination.

1. When assessing control of an entity controlled by voting rights:
    
   1. What factors should be considered when assessing whether a reporting entity that holds less than half of the voting rights in an entity meets the power element of the control definition.
   2. In what situations potential voting rights should be considered.
       
2. How to determine whether a decision maker is an agent or a principal.
    
3. Whether the involvement and interests of related parties should be considered to be those of the reporting entity.
    
4. The description of a structured entity.

1. When assessing whether a decision-maker is an agent or a principal, the assessment should be made on the basis of the overall relationship between the decision-maker, the entity being managed, and the other interest holders, and should consider all of the following factors:
    
   1. Scope of decision-making authority
   2. Rights held by other parties
   3. Remunerations of the decision-maker
   4. The decision-maker's exposure to variability of returns because of other interest that it holds in the entity.
       
2. When assessing control, the involvement and interests of a related party should be considered to be those of the reporting entity when the nature of the reporting entity's relationship with that related party is such that the related party is acting on behalf of the reporting entity. The Boards tentatively agreed that this would also be the case where those that direct the activities of the reporting entity also have the ability to direct another entity to act on behalf of the reporting entity. The Boards also tentatively decided that the final standard will include a list of potential related parties. The Boards tentatively agreed to include guidance in the final standard that is similar to that in FASB Accounting Standards Codification™ paragraph 810-10-25-44 to address situations in which a reporting entity, together with its related parties, as a group, meets the control requirements.
    
3. A description of a structured entity should be included in the next due process document. That description would incorporate some of the factors that describe a variable interest entity in U.S. GAAP (Topic 810, Consolidation, as amended by FASB Statement No.167, Amendments to FASB Interpretation No. 46(R)), but the description would not include all of the current guidance that is in Topic 810.

1. A lessee would present separately its obligation to pay rentals from other financial liabilities on the face of the statement of financial position.
    
2. A lessee would present its right-of-use asset with property, plant, and equipment, but separately from other assets that are owned but not leased, on the face of the statement of financial position.
    
3. Both amortization and interest expense arising in lease contracts would be separated from other amortization expense and other interest expense either on the face of the statement of comprehensive income or in the notes of financial statements.
    
4. Both cash repayments of amounts borrowed and interest payments arising in lease contracts would be classified as financing activities separately in the statement of cash flows. The Boards instructed the staff to consider how total cash rentals paid in the period should be presented or disclosed in the financial statements.

1. Repayments of the lease receivable would be classified as operating activities in the statement of cash flows.
    
2. Interest income arising from the lease receivable would be classified as operating activities in the statement of cash flows.

1. Risk adjustments
2. Participating features in insurance contracts.

1. The measurement of an insurance contract should include a separate risk adjustment.
2. The risk adjustment should be the amount the insurer would rationally pay to be relieved of the risk [the objective proposed for the risk adjustment used in the IASB’s recent Exposure Draft, Measurement of Liabilities in IAS 37].

1. Explains the characteristics of its insurance contracts
2. Identifies and explains the amounts in its financial statements arising from insurance contracts
3. Helps users of its financial statements to evaluate the nature and extent of risks arising from insurance contracts.

1. Their relevance to providing information about amount, timing, and uncertainty of future cash flows
2. The disclosure objectives developed in other projects
3. The appropriate level of disaggregation for disclosures.

1. A reporting entity has the power to direct the activities of another entity when it has the current ability to direct the activities of the entity that significantly affect the returns.
    
2. The reporting entity can have that current ability to direct the activities by different means:
    
   1. By having the contractual ability to direct the activities, which can arise from having:
       
      i. More than half of the voting rights in an entity controlled by voting rights
      
      ii. Contractual rights within other contractual arrangements that related to the substantive activities of the entity
      
      iii. A combination of contractual rights within other contractual arrangements and holding voting rights in the entity.
      
      
   2. By holding less than half of the voting rights in an entity considering relevant facts and circumstances.
       
      i. The assessment of whether a reporting entity has the current ability to direct the activities of an entity includes an assessment of both the reporting entity's rights (and whether they are sufficient to give the reporting entity power) and whether the rights held by other parties could prevent the reporting entity from having the ability to direct.
      
      ii. In situations in which a reporting entity does not have the contractual ability to direct the activities (e.g., when it holds less than half of the voting rights in an entity), a reporting entity may need to rely on other indicators of power to provide evidence of having the ability to direct, such as whether it can obtain additional voting rights from holding potential voting rights or whether the entity's operations are dependent on the reporting entity. In some situations, considering the size of the reporting entity's holding of voting rights relative to the size and dispersion of holds of other vote holders, together with voting patterns at previous shareholders meetings, could provide sufficient evidence of having the ability to direct.

1. The composition (and changes in the composition) of the group
    
2. The effect of legal structures within the group, and changes to those structures, on the reporting entity's ability to access and use assets and resources of consolidated entities
    
3. The nature of, and changes in, the risks associated with the reporting entity's involvement with structured entities.

1. All significant judgments and assumptions in determining whether it controls another entity and any changes in its control assessments that require significant judgment and the reasons for those changes
    
2. The nature of restrictions that are a consequence of assets and liabilities by the parent or its subsidiaries.

1. Summarized financial information on subsidiaries
    
2. The interest that the noncontrolling interests have in the group
    
3. A reporting entity's risk exposure from its involvement with subsidiaries.