Tentative Board Decisions
Tentative Board decisions are provided for those interested in following
the Board´s deliberations. All of the reported decisions are tentative and may
be changed at future Board meetings.
August 27, 2014 FASB Board Meeting
Insurance—Targeted
Improvements to the Accounting for Long-Duration Contracts. The Board
discussed issues related to the liability for future policy benefits for
long-duration insurance contracts.
Periodic Assumption
Update
The Board decided to require that insurance entities update
all assumptions used in calculating the liability for future policy benefits for
traditional long-duration contracts, limited payment contracts, and
participating life insurance contracts annually, during the fourth quarter, and
include the effects of changed assumptions in the determination of net income.
The Board decided that a provision for adverse deviation should not be included
in the calculation of the liability. The Board also decided to require that
entities disclose information about the liability for future policy benefits and
the assumptions used. These disclosures include:
- Disaggregated balance of the liability for future policy benefits and the
weighted-average discount rates used to measure the liability for future
policy benefits in time bands, and any additional information about amounts
and rates within the time bands provided that significantly affect the
discount rates
- Disaggregated quantitative and qualitative information about the methods
and inputs used to develop the measurement of the liability for future policy
benefits, including disclosure of assumptions used (such as discount rate,
mortality, morbidity, termination [lapse], and expense assumptions)
- Disaggregated reconciliations from the opening to the closing balance of
the liability for future policy benefits, with separate disclosure of changes
in the liability for future policy benefits due to new contracts, benefit
payments, changes in assumptions, and derecognition of contracts.
The
Board decided that the guidance proposed for the periodic assumption update for
traditional long-duration contracts, limited payment contracts, and
participating life insurance contracts would apply for updating assumptions used
to calculate the additional liability for universal life-type contracts.
Premium Deficiency and Loss Recognition
As a result of
its decision to require that insurance entities annually update all assumptions
used in the calculation of the liability for future policy benefits, the Board
decided that a premium deficiency test would not be required.
Next
Steps
The Board directed the staff to do additional research on the
discount rate used to calculate the liability for future policy benefits. The
Board will continue to deliberate the discount rate and other targeted
improvements to accounting for long-duration contracts at a future Board
meeting.
Leases.
The Board continued redeliberating the proposals in the May 2013 Exposure Draft,
Leases, specifically discussing the following topics: (1) nonpublic
business entity discount rate considerations, (2) related party leasing
transactions, (3) accounting for sale and leaseback transactions, and (4)
leveraged leases.
Nonpublic Business Entity Discount Rate
Considerations
The Board decided to retain the accounting policy
election to use the risk-free rate for nonpublic business entities (that is, all
other entities beside public business entities).
Related Party
Leasing Transactions
The Board decided to retain the related party
leases guidance proposed in the 2013 Exposure Draft. The Board reaffirmed that
lessees and lessors should be required to account for their related party leases
on the basis of the legally enforceable terms and conditions of the lease. The
Board decided that lessees and lessors should be required to apply the
disclosure requirements for related party transactions in accordance with Topic
850.
Accounting for Sale and Leaseback
Transactions
Repurchase Options in a Sale and Leaseback
Transaction
The Board decided to follow the recently issued
revenue recognition guidance and clarify that a repurchase option exercisable
only at the then-prevailing fair market value would not preclude sale treatment,
provided that the underlying asset is nonspecialized and readily available in
the marketplace. The repurchase option must be substantive in order to affect
the accounting for the transaction. In reaching this decision, some Board
members thought that this application was consistent with language provided in
the basis for conclusions of the recently issued revenue recognition
standard.
Application Guidance for Determining Whether a Sale Has
Occurred
The Board decided to include application guidance,
with respect to determining whether a sale occurs in the context of a sale and
leaseback transaction, in the final leases standard.
Accounting
for a "Failed" Sale and Leaseback Transaction
The Board decided
that if a sale and leaseback transaction does not result in a sale, the "failed"
sale should be accounted for as a financing transaction by the seller-lessee and
buyer-lessor.
Leveraged Leases
The Board reaffirmed the
proposal in the 2013 Exposure Draft that leveraged lease accounting should be
eliminated. That is, the lessor should account for leases that currently qualify
as leveraged leases consistent with all other leases within the new leases
guidance.
The Board decided that existing leveraged leases should be
grandfathered during transition.
Next Steps
The FASB and
the IASB will continue their redeliberations at a future Board
meeting.
Financial
Statements of Not-for-Profit Entities. The Board continued its initial
deliberations, focusing on whether to require not-for-profit entities (NFPs) to
disclose the following information:
Salaries and Benefits Expense
The Board previously decided to require an NFP to report investment
returns net of external and direct internal investment expenses and, for
practical reasons, to no longer require disclosure of investment-related
expenses that have been netted against investment revenues. To address concerns
about the potential loss of relevant salary and benefit-related information, the
Board decided that an NFP would disclose the amount of internal salaries and
benefits, if any, that have been netted against investment return.
Cost-Allocation
The Board decided that notes to
financial statements should include a description of the method used to allocate
costs among program and support functions. The Board also decided to refine the
Codification´s definition of management and general activities
and to provide additional implementation guidance to better depict which support
costs should be allocated among program and/or support
functions.
Tax-Exempt Status
The Board affirmed its
previous decision not to require an NFP to disclose its tax-exempt status; thus,
a business-oriented NFP health care entity would no longer be required to
disclose its tax-exempt status in accordance with paragraph
954-740-50-1.