Tentative Board Decisions

Tentative 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.

February 19, 2014 FASB Board Meeting

Insurance Contracts. The Board began redeliberations of the June 2013 Exposure Draft, Insurance Contracts (Topic 834).

The Board discussed whether the scope of the insurance contracts project should continue to include all entities that issue insurance contracts as proposed in the Exposure Draft. The Board decided to limit the scope to insurance entities as described in existing U.S. generally accepted accounting principles (U.S. GAAP).

The Board also discussed a range of possible approaches the project could take, including considering a comprehensive redeliberation of the project based on the proposed Update or considering targeted improvements to existing U.S. GAAP. The Board decided the project should focus on making targeted improvements to existing U.S. GAAP. For short-duration contracts, the Board decided to limit the targeted improvements to enhancing disclosures. For long-duration contracts, the Board concluded that decisions reached by the IASB in its 2013 IASB Exposure Draft, Insurance Contracts, should be considered when contemplating improvements to existing U.S. GAAP.

Next Steps

The Board directed the staff to perform an analysis of existing U.S. GAAP for long-duration contracts and an assessment of the areas that should be considered for targeted improvements.


Accounting for Financial Instruments—Impairment. The Board continued redeliberating the proposed Accounting Standards Update, Financial Instruments—Credit Losses (Subtopic 825-15), specifically discussing topics related to nonaccrual, purchased credit-impaired (PCI) financial assets, and troubled debt restructurings (TDRs).

Nonaccrual—The Board decided to exclude the proposed nonaccrual guidance from the Current Expected Credit Losses (CECL) Model. However, the Board decided to consider adding as pre-agenda research whether U.S. GAAP should include nonaccrual guidance.

PCI Assets—The Board decided not to expand the PCI approach, as proposed in the proposed Update, to other financial assets. The Board also decided to include in the CECL Model a requirement that the non-credit-related discount or premium resulting from acquiring a pool of PCI financial assets should be allocated to each individual financial asset.

TDRs—The Board decided that the TDR classification remains relevant under the CECL Model. In addition, the Board decided to revise the CECL Model to require that, in certain TDRs, an entity may be required to increase the cost basis of the restructured financial asset through a corresponding increase in the entity’s allowance for expected credit losses.

The Board also discussed prepayment expectations in the context of determining the adjustment to a restructured financial asset’s cost basis. The Board decided an entity may consider prepayment expectations and prospectively reflect an adjusted yield if prepayment speeds are different than expected. This decision is contingent on the Board’s review of staff prepared examples illustrating this alternative.


FASB Endorsement of Private Company Council (PCC) Consensus. The Board endorsed the following decisions made by the PCC at its January 28, 2014 meeting.

PCC Issue No. 13-02, “Applying Variable Interest Entity Guidance to Common Control Leasing Arrangements”

A private company may elect not to apply VIE guidance to a lessor entity if all of the following criteria are met:
  1. The private company (the reporting entity) and the lessor entity are under common control.
  2. The private company has a leasing arrangement with the lessor entity.
  3. Substantially all of the activity between the private company and lessor entity relates to the leasing arrangement.
  4. Any obligation of the lessor that is being guaranteed or collateralized by the private company could (have the ability to), at inception of the obligation, be sufficiently collateralized by the asset(s) leased to the private company. The Board noted that this criterion will be edited to more clearly reflect the intent of the PCC’s decisions.
Under this alternative, a private company would replace VIE disclosures about the lessor entity with both of the following:
  1. The amount and key terms of significant liabilities recognized by the lessor entity that expose the private company lessee to providing significant financial support to the lessor entity
  2. A qualitative description of significant arrangements not recognized by the lessor entity that expose the private company lessee to providing financial support to the lessor entity.
For further details, refer to the January 28, 2014 PCC Decision Overview.

The Board also affirmed its decision to remove an example derived from FSP FIN 46(R)-5, "Implicit Variable Interests under FASB Interpretation No. 46," which is codified in paragraphs 810-10-55-87 through 55-89.

The Board directed the staff to draft a final Accounting Standards Update for vote by written ballot.


Consolidation—Principle versus Agent Analysis. The Board continued to redeliberate the November 2011 proposed FASB Accounting Standards Update, Consolidation (Topic 810): Principal versus Agent Analysis.

The Board discussed how to further integrate two of the principal versus agent factors into the existing consolidation guidance (Topic 810):
  1. The compensation to which the decision maker is entitled in accordance with its compensation agreement(s) (“fees paid to a decision maker”)
  2. The decision maker’s exposure to variability of returns from other interests that it holds in the entity (“economic interests”).
Fees Paid to a Decision Maker

For purposes of the discussion, it was assumed that all fees paid to the decision maker fail to meet the conditions included in paragraph 810-10-55-37 and, therefore, represent a variable interest in a variable interest entity (VIE). Furthermore, it was assumed that the decision maker has the power to direct the activities that most significantly impact the economic performance of the VIE.

The Board decided that fees paid to a decision maker that meet both conditions (1) and (2) below should be excluded from the primary beneficiary determination:
  1. The compensation of the decision maker is commensurate with the services provided.
  2. The compensation agreement includes only terms, conditions, or amounts that are customarily present in arrangements for similar services negotiated on an arm’s-length basis.
The Board also decided to exclude fees paid to a decision maker that meet both conditions (1) and (2) above when such fees may be subject to lock-up provisions or settled in the form of variable interests (that is, not cash) of the VIE. The Board decided that agreements that have lock-up provisions or settle in variable interests should be evaluated when funded or received and not as a part of the fee agreement.

Additionally, the Board decided that fees paid to a decision maker that meet both conditions (1) and (2) above should not be aggregated with other variable interests of the decision maker; such fees should continue to be excluded from the primary beneficiary determination.

Economic Interests Held by a Decision Maker

The Board also considered and decided not to change existing GAAP provisions that require the primary beneficiary to have the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.