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.

April 6, 2011 FASB Board Meeting

Accounting for financial instruments.

Business Strategy Criterion for Classifying and Measuring Financial Instruments

The Board discussed refinements to the business strategy criterion for classifying and measuring financial instruments. The Board decided that an entity should classify financial instruments based on the business activity the entity uses to manage those financial instruments rather than on the entity’s intent for an individual financial instrument. An entity would not be prevented from managing the same or similar financial instruments through different business activities. The Board decided to require that an entity classify all financial instruments into one of the three classification and measurement categories developed. The Board refined the categories as follows: 

Amortized Cost Category
The business activity for these financial instruments must meet all of the following conditions:

  1. Financial instruments issued or acquired for which an entity’s business strategy, at origination or acquisition of the instrument, is to manage the instruments through customer financing (lending or borrowing) activities. These activities primarily focus on the collection of substantially all of the contractual cash flows from the borrower or payment of contractual cash flows to the lender.
     
  2. Financial instruments for which the holder of the instrument has the ability to manage credit risk by negotiating any potential adjustment of contractual cash flows with the counterparty in the event of a potential credit loss. Sales or settlements would be limited to circumstances that would minimize losses due to deteriorating credit.
     
  3. Financial instruments that are not held for sale (assets) or transfer (liabilities) at acquisition or issuance.
     
FV-OCI (Fair Value–Other Comprehensive Income) Category
The business activity for these financial instruments must meet all of the following conditions:

  1. Financial assets issued or acquired in a business activity for which an entity’s business strategy, at origination or acquisition of the instruments, is to invest the cash of the entity either to:

    1. Maximize total return by collecting contractual cash flows or selling the instrument
       
    2. Manage the interest rate or liquidity risk of the entity by either holding or selling the instrument.

  2. Financial assets that are not held for sale at acquisition or issuance.

FV-NI (Fair Value– Net Income) Category
The business activity for these financial instruments must meet either of the following conditions:

  1. Financial instruments that are held for sale (assets) or transfer (liabilities) at acquisition
     
  2. Financial instruments that are actively managed and monitored internally on a fair value basis but do not qualify for the FV-OCI category.
Hybrid Financial Instruments

The Board discussed whether certain embedded derivative features in hybrid financial instruments should be bifurcated and accounted for separately from the host contract. The Board decided to retain bifurcation and separate accounting of embedded derivative features for hybrid financial assets and hybrid financial liabilities as currently required under Subtopic 815-15, Derivatives and Hedging—Embedded Derivatives.