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 29, 2011 FASB/IASB Joint Videoconference Board
Meeting
Accounting
for financial instruments: impairment. The IASB and the FASB
discussed impairment accounting for purchased financial assets, including
whether an impairment allowance should be established upon acquisition and the
subsequent interest income recognition for purchased financial assets.
At
the March 22nd meeting, the Boards discussed whether or not
originated instruments and purchased instruments subject to impairment
accounting should have consistent accounting models for interest income
recognition and impairment. The Boards did not reach a decision on this question
and asked the staff to prepare examples for further discussion.
The
Boards continued their discussion on these issues using examples provided by the
staff. The Boards tentatively decided that for purchased financial assets that
do not have an explicit expectation of losses (that is, loans recognized in the
“good book” upon acquisition) when analyzed at the individual asset level, even
when acquired as part of a portfolio, an entity should account for impairment in
the same way as for originated loans. Interest income for these assets would be
recognized on the basis of contractual cash flows. This decision effectively
aligns impairment accounting and interest income recognition for originated
loans and “good” purchased financial assets (those that do not have an explicit
expectation of losses at the individual asset level at acquisition). The Boards
will determine the appropriate impairment accounting model for these loans in
redeliberating the Supplementary Document, which is currently open for
comment.
The Boards also discussed impairment accounting, including
interest income recognition, for financial assets purchased where an explicit
expectation of loss exists at the individual financial asset level (that is,
where the loan goes into a “bad book” at acquisition). The Boards tentatively
decided that interest income recognized should be based on expected collectible
cash flows estimated at the date of acquisition (that is, accrete purchase price
to expected cash flows). As a result of limiting the recognition of interest
income for these credit deteriorated assets, a separate impairment expense would
not be recognized at the date of acquisition.
The Boards noted that
their decisions at this meeting were subject to future discussions on pending
issues. These issues include (1) determining how to differentiate purchased
portfolios of financial assets into “good books” and “bad books” and the
underlying accounting and (2) the necessity and application of “nonaccrual”
guidance.
Insurance
contracts. The IASB and the FASB continued their discussions on
insurance contracts by considering the issue of whether the margin should be
adjusted for changes in estimates of expected cash flows (that is, unlocking the
margin) and an update on the Insurance Working Group meeting held on March 24,
2011.
Unlocking the Margin
The Boards discussed whether
the residual or composite margin should be locked-in at inception (as proposed
in the IASB’s Exposure Draft, Insurance Contracts, and the FASB’s
Discussion Paper, Preliminary Views on Insurance Contracts) and, if
not, how the margin might be unlocked.
The Boards were not asked to make
any decisions on this topic.
Insurance Working Group
Meeting
The Boards were updated on the March 24, 2011 Insurance
Working Group meeting.
No decisions were made.