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.
June 10, 2013 FASB Board Meeting
FASB Endorsement of
Private Company Council Decisions. The Board endorsed the following Private
Company Council (PCC) decisions reached at the May 7, 2013 PCC meeting.
PCC Issue No. 13-01A, "Accounting for Identifiable Intangible Assets in
a Business Combination"
Under this proposal, private companies
would have the option of limiting the recognition of intangible assets acquired
in a business combination to those arising from noncancelable, contractual
arrangements or other legal rights. In other words, private companies would not
be required to recognize separately an intangible asset that is only
separable.
For further details refer to the May
7, 2013 PCC Decision Overview.
PCC Issue No. 13-01B,
"Accounting for Goodwill Subsequent to a Business Combination"
This proposal would provide private companies the option of accounting for
goodwill using a method that includes both amortization and a simplified
impairment test. Private companies electing this option would amortize goodwill
over the useful life of the primary asset acquired in a business combination,
not to exceed 10 years. Under the proposed simplified impairment test, private
companies would test for impairment only when a triggering event occurs that
would more likely than not reduce the fair value of a company below its carrying
amount.
For further details refer to the May
7, 2013 PCC Decision Overview.
PCC Issue No. 13-03,
"Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate
Swaps"
The third proposal would allow private companies the
option of using one or two simpler methods to accounting for certain interest
rate swap contracts entered for the purpose of economically converting a
variable-rate borrowing into a fixed-rate borrowing. Under both approaches, the
periodic income statement charge for interest would be similar to the amount
that would result if the private company had borrowed at a fixed rate. All
private companies, except for financial institutions, would be eligible to use
the simplified approaches.
Combined Instruments Approach
In order to demonstrate that the intent of the private company in entering into
the swap is to economically obtain fixed-rate borrowing, certain criteria would
need to be met. Those criteria include:
- The swap term approximates the term of the borrowing.
- The swap is effective at the same time as the borrowing.
If the
criteria are met, the private company would be eligible to apply the "combined
instruments" approach. The combined instruments approach provides private
companies with an entity-wide accounting policy election to apply a scope
exception from the current guidance in Topic 815, Derivatives and Hedging.
Under that approach, the swap and the borrowing are accounted for as one
combined financial instrument. In other words, the swap would not be recorded in
the private company's financial statements (except for the period-end accrual
relating to the next swap settlement) under this approach. However, the
settlement value of the swap (along with method and assumptions) would be
disclosed in the notes to the financial statements. The primary difference
between settlement value and fair value is generally a credit valuation
adjustment, that is, nonperformance risk is not considered in determining
settlement value.
Simplified Hedge Accounting Approach
The "simplified hedge accounting" approach is a practical expedient to obtain
hedge accounting under Topic 815. The criteria to qualify for simplified hedge
accounting are similar to the criteria proposed under the "combined instruments
approach"; however, the term of the swap could be less than the term of the
borrowing and the swap does not have to be effective at the same time as the
borrowing. This approach assumes no ineffectiveness if the swap is designated in
a hedging relationship under Topic 815. Furthermore, the designated swap may be
recorded at settlement value in the private company's financial statements,
instead of at fair value. Because Topic 815 permits election of hedge accounting
on a swap-by-swap basis, a private company could elect to apply this approach to
any swaps, whether existing at the date of adoption or entered into on or after
that date, provided they otherwise meet all the requirements of applying the
approach.
For further details refer to the May
7, 2013 PCC Decision Overview.
Comment Period
The Board decided to expose the proposals with a comment period ending
August 23, 2013. However, the Board will reconsider the comment period deadline
if it issues the Exposure Drafts after June 2013.
Outreach
For PCC Issue Nos. 13-01A and 13-01B, the Board
directed the staff to conduct additional research during the comment period to
assess the applicability of these proposals to public and not-for-profit
entities.
For PCC Issue No. 13-03, the Board directed the staff to
conduct outreach through its normal channels, including advisory groups and
other meetings in which the FASB participates to aid in determining
applicability of either of these alternatives to public and not-for-profit
entities. In light of the FASB hedging project, the Board did not direct the
staff to perform additional outreach to public companies during the comment
period.