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 26, 2011 FASB Board Meeting
Accounting
for financial instruments: classification and measurement. The
Board discussed three topics related to the classification and measurement of
financial instruments:
Practicability Exception for Nonmarketable Equity Securities Held by
Nonpublic Entities
The Board decided at the March 2, 2011 meeting
that for nonpublic entities, a practicability exception to fair value
measurement should be provided for investments in nonmarketable equity
securities. The practicability exception would permit nonmarketable equity
securities to be measured at cost less any impairment plus upward adjustments in
fair value being recognized if information about a change in price is
observable.
At today’s meeting, the Board discussed further refinement of
the measurement of the practicability exception and tentatively decided that a
nonpublic entity should use observable price changes in orderly transactions for
the identical or similar financial asset with the same issuer to be used as an
input for adjusting the carrying value of a nonmarketable equity security. When
information about a change in price is observable, a nonpublic entity would be
required to adjust the carrying value of a nonmarketable equity security upward
or downward.
The Board also discussed the impairment model for a
nonmarketable equity security accounted for under the practicability exception.
The Board tentatively decided that an entity would apply a single-step approach
in which an entity assesses qualitative factors (that is, impairment indicators)
to determine whether it is more likely than not the fair value of a
nonmarketable equity security is less than its carrying amount (that is, an
impairment exists). If an impairment exists, an impairment loss would be
recognized in earnings equal to the entire difference between the investment’s
carrying value and its fair value.
Application of and Criteria for
the Equity Method of Accounting
The Board discussed the application
of and criteria for the equity method of accounting. The Proposed Update
included a “related operations” criterion, in addition to the “significant
influence” criterion, which exists under current GAAP, for qualifying for the
equity method of accounting. The Board decided to retain only the “significant
influence” criteria, which leaves the criteria for the equity method of
accounting unchanged from current GAAP. The Board directed the staff to consider
the implications of additional qualitative disclosures around investments
accounted for under the equity method.
The Board discussed whether an
unfettered fair value option should be allowed for equity method investments.
The Board decided that a fair value option is not permitted for equity method
investments. The Board also directed the staff to provide alternatives for
criteria under which equity investments of “significant influence” must be
carried by an entity at fair value through net income. The staff will present
these alternatives to the Board at a future meeting.
Impairment of
Equity Method Investments
The Board discussed alternatives for the
impairment of equity method investments. The Board decided that an entity would
apply a single-step approach in which an entity assesses qualitative factors
(that is, impairment indicators) to determine whether an equity method
investment is impaired. The Board directed the staff to draft language that
would allow for a single impairment model to be applied to both marketable and
nonmarketable equity method investments.
The Board decided that an entity
that accounts for an investment under the equity method may not reverse
previously recognized impairment
losses.
Statement
of comprehensive income. The Board met to discuss a change to the
effective date for the final Accounting Standards Update, Comprehensive
Income (Topic 220): Presentation of Comprehensive Income, and to decide
whether to apply this change to nonpublic entities only.
The Board
decided to include an extended effective date for nonpublic entities only, which
will require nonpublic entities to apply the guidance in the Update for fiscal
years ending after December 15, 2012, and interim periods thereafter. Public
entities will be required to apply the guidance in the Update for fiscal years,
and the interim periods within those years, beginning after December 15, 2011,
as decided at the November 2010 joint Board meeting.