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.

Wednesday, August 2, 2017 FASB Board Meeting

Insurance — targeted improvements to the accounting for long-duration contracts. The Board began redeliberating the amendments in proposed Accounting Standards Update, Financial Services — Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. The meeting topic was the liability for future policy benefits for nonparticipating traditional and limited-payment insurance contracts.

Assumptions Used in Measuring the Liability

The Board decided the following:
  1. Assumptions used to measure the liability for future policy benefits for nonparticipating traditional and limited-payment contracts should be updated.
  2. The effect of assumption changes should be calculated and recorded on a catch-up basis in net income.
  3. Cash flow assumptions should be reviewed and updated on an annual basis, at the same time every year, or more frequently in interim reporting periods if evidence suggests that earlier cash flow assumptions should be revised.
  4. The provision for risk of adverse deviation and premium deficiency tests should be eliminated for nonparticipating traditional and limited-payment contracts. The net premium ratio should be capped at 100 percent.
  5. Contracts from different issue years should not be grouped, but contracts issued within a single issue year may be grouped when determining the level of aggregation for measuring the liability for future policy benefits.
  6. The expense assumption would be permitted, but not required, to be updated in a manner consistent with the update methodology used for all other cash flow assumptions.
Discount Rate Used in Measuring the Liability

The Board decided the following:
  1. Future cash flows should be discounted using a current upper-medium grade fixed-income instrument yield.
  2. The discount rate assumption should be updated at each reporting date.
  3. The effect of updating the discount rate assumption should be recognized immediately in other comprehensive income.
Transition

The Board decided the following:
  1. An insurance entity would apply the proposed amendments to all contracts in force on the basis of their existing carrying amounts at the transition date, adjusted for the removal of any related amounts in accumulated other comprehensive income. However, an insurance entity would have the option to apply the proposed amendments retrospectively (with a cumulative catch-up adjustment to the opening balance of retained earnings).
Next Steps

The staff plans to discuss the following topics at future Board meetings:
  1. Participating insurance contracts (that is, assumptions used to measure the liability)
  2. Measurement of market risk benefits
  3. Amortization of deferred acquisition costs
  4. Presentation and disclosures.

Leases implementation. The Board decided to propose amendments to the transition provisions in Topic 842 for certain land easements that existed before that Topic's effective date. Specifically, as a practical expedient, the Board would provide optional transition guidance that would permit an entity not to apply Topic 842 to land easements that existed before that Topic's effective date, provided that the entity does not currently apply Topic 840 to those land easements. An entity should continue to apply its current accounting policies for accounting for land easements that existed before the effective date of Topic 842. When Topic 842 becomes effective, an entity will apply Topic 842 to all new (or modified) land easement arrangements to determine whether the arrangements should be accounted for as leases under Topic 842. The Board also decided to amend Example 10 of Subtopic 350-30 on intangibles other than goodwill to eliminate the perceived inconsistency between that example and Topic 842.

Transition Guidance

The Board decided that the effective date and transition requirements for the proposed amendments should be the same as the effective date and transition requirements of Topic 842.

Analysis of Benefits and Costs

The Board concluded that the expected benefits of the proposed changes would justify the costs.

Next Steps

The Board directed the staff to draft a proposed Accounting Standards Update outlining the amendments to be made to Topic 842 and Example 10 of Subtopic 350-30 for vote by written ballot, with a comment period of 30 days.


Improving the accounting for asset acquisitions and business combinations. The Board decided that the project should address differences in the accounting for acquisitions of assets and of businesses, rather than addressing differences in the accounting for sales or the derecognition of assets and of businesses. The Board decided that the project would focus on certain areas within the acquisition models, specifically the accounting for transaction costs, in-process research and development (IPR&D), and contingent consideration. The Board also directed the staff to consider whether certain exceptions in the accounting for business combinations should be extended to the accounting for acquisitions of assets, including the reassessment of certain contracts (such as leases) and the measurement exceptions associated with reacquired rights, indemnification assets, and leases.