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.

May 17, 2010 FASB/IASB Joint Board Meeting

Revenue recognition. The Boards considered:

  1. Repurchase agreements
  2. Sales of assets that are not an output of an entity’s ordinary activities.

Repurchase Agreements

The Boards tentatively decided that the forthcoming Exposure Draft will explain how an entity would determine whether a buyer obtains control of an asset subject to a repurchase agreement.

  1. If a buyer has the unconditional right to require the entity to repurchase the asset (a put option), the buyer obtains control of the asset and the entity should account for the agreement similarly to the sale of a product with a right of return.
  2. If an entity has an unconditional obligation or unconditional right to repurchase the asset (a forward or a call option), the buyer does not obtain control of the asset. The entity should account for the repurchase agreement as:
    1. A lease in accordance with FASB Accounting Standards Codification™ Topic 840, Leases, or IAS 17, Leases, if the entity repurchases the asset for less than the original sales price of the asset (that is, the buyer pays a net amount of consideration to the entity).
    2. A financing arrangement if the entity repurchases the asset for more than the original sales price of the asset (that is, the entity pays a net amount of consideration to the buyer).
  3. If the sale and repurchase agreement is a financing arrangement, the entity should continue to recognize the asset and should recognize a financial liability for any consideration received from the buyer. The entity should recognize the difference between the amount of consideration received from the buyer and the amount of consideration paid to the buyer as interest and, if applicable, holding costs (for example, insurance).
The FASB tentatively decided to remove from the Accounting Standards Codification Subtopic 470-40, Debt— Product Financing Arrangements.

Sales of Assets That Are Not an Output of an Entity’s Ordinary Activities

The Boards tentatively decided that an entity should apply the recognition and measurement principles of the proposed revenue model to contracts for the sale of the following assets that are not an output of the entity’s ordinary activities: 
  1. Intangible assets within the scope of Topic 350, Intangibles—Goodwill and Other, or IAS 38, Intangible Assets
  2. Property, plant, and equipment within the scope of Topic 360, Property, Plant, and Equipment, or IAS 16, Property, Plant and Equipment, or IAS 40, Investment Property.

Consequently, the entity would:

  1. Derecognize the asset when the buyer obtains control of the asset.
  2. Recognize at that date a gain or loss equal to the difference between the transaction price and the carrying amount of the asset. The transaction price would be limited to amounts that can be reasonably estimated at the date of transfer.

Next Steps

The Boards plan to publish the Exposure Draft in June.
 

Conceptual framework: objective & qualitative characteristics. The Boards discussed two issues that arose from the ballot draft on the objective of financial reporting and the qualitative characteristics chapters. First, they agreed that materiality is an entity-specific aspect of relevance rather than a constraint to be considered in setting financial reporting standards. Second, they discussed how best to describe the objective of financial reporting. The Boards directed the staff to prepare a new ballot draft to reflect the results of the decision about materiality and the discussion of the objective.


May 18, 2010 FASB/IASB Joint Board Meeting

Leases. The Boards discussed:
  1. Lessor accounting for the performance obligation
  2. Derecognition approach to lessor accounting.
Lessor Accounting for the Performance Obligation

The Boards tentatively decided that under a performance obligation approach to lessor accounting, the lessor has a single performance obligation to continue to permit the lessee to use the leased asset over the lease term. That performance obligation would be satisfied, and revenue recognized, continuously over the lease term.

Derecognition Approach to Lessor Accounting

The Boards discussed an alternative approach to lessor accounting, the derecognition approach. The Boards then discussed two possible models—a full derecognition approach and a partial derecognition approach.

If the Boards adopt a derecognition approach to lessor accounting, they tentatively decided to adopt a partial derecognition approach. Under that approach, the Boards discussed:
  1. Accounting for residual assets
  2. Accounting for options.
Accounting for Residual Assets

The Boards tentatively decided that the residual asset would be an allocation of the previous carrying amount of the underlying asset. The residual asset would not be remeasured unless for impairment.

Accounting for Options

The Boards tentatively decided that initial measurement of the residual asset recognized by the lessor would be based on the assessed lease term, that is, the longest possible lease term that is more likely than not to occur.


Insurance contracts. [This topic will be posted as soon as it becomes available.]


Consolidation. [This topic will be posted as soon as it becomes available.]


May 19, 2010 FASB/IASB Joint Board Meeting

Leases. [This topic will be posted as soon as it becomes available.]


Insurance contracts. [This topic will be posted as soon as it becomes available.]


Derecognition. [This topic will be posted as soon as it becomes available.]