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.

Reference rate reform: facilitation of the effects of the interbank offered rate transition on financial reporting. The Board discussed the following topics:

1. The scope criteria for determining whether a contract modification may qualify for relief
2. The recognition and measurement relief for contract modifications that meet the scope criteria
3. Whether the application of the relief should be mandatory or optional on a Codification Topic-by-Topic basis.

The Board decided on the following principles for the scope criteria:

1. Contracts that reference the London Interbank Offered Rate or an interest rate that has been discontinued or is anticipated to be discontinued would qualify for the relief guidance.
2. Critical term changes that are either essential to or related to the replacement of an interest rate would qualify for the relief guidance. The Board also decided to provide examples of eligible and ineligible changes.

The Board decided to provide relief from the following:

1. The assessment to determine whether a modification to a loan or debt instrument is a troubled debt restructuring, modification, or extinguishment in accordance with Subtopics 310-20, Receivables—Nonrefundable Fees and Other Costs, 310-40, Receivables—Troubled Debt Restructurings by Creditors, 470-50, Debt—Modifications and Extinguishments, and 470-60, Debt—Troubled Debt Restructurings by Debtors
2. The lease modification accounting requirements in accordance with Topic 842, Leases
3. The reassessment of embedded derivatives in accordance with Topic 815, Derivatives and Hedging.

Option to Apply Relief

The Board decided to provide an option for an entity to determine whether it wants to apply the relief on a Codification Topic-by-Topic basis.

Next Steps

The Board will discuss the following topics at a future meeting:

1. Hedge accounting relief
2. Disclosures
3. Transition
4. Relief period.

Distinguishing liabilities from equity (including convertible debt). The Board deliberated sweep issues and decided to:

1. Modify the scope of Section 815-40-50, Derivatives and Hedging—Contracts in Entity's Own Equity—Disclosure, to apply only to freestanding instruments. Embedded features would not be subject to Section 815-40-50 requirements.
2. Retain the existing language related to the disclosure frequency for convertible instruments in Section 470-20-50, Debt—Debt with Conversion and Other Options—Disclosure.
3. Clarify that an entity should use the average share price when calculating the diluted earnings per share denominator for contracts if there is variability in the pricing or number of shares that would be issued.
4. Reverse its prior decision to make a technical correction to paragraph 470-20-25-2 that would have clarified that an entity should consider Topics 480, Distinguishing Liabilities from Equity, and 815, Derivatives and Hedging, for the classification of the detachable stock purchase warrant.
5. Clarify that the remote threshold in Section 815-40-25, Derivatives and Hedging—Contracts in Entity's Own Equity—Recognition, applies to the likelihood of the occurrence of contingent events that could cause net cash settlement, not to the likelihood of net cash settlement.
6. Clarify that penalty payments, if the entity fails to make timely filings with the U.S. Securities and Exchange Commission, would not preclude equity classification under paragraph 815-40-25-10(d) because they would not result in settlement of a contract.

The Board concluded that it has received sufficient information and analysis to make an informed decision on the perceived costs of the changes and that the expected benefits would justify the expected costs of the amendments in the proposed Update.

Next Steps

The Board directed the staff to draft a proposed Accounting Standards Update for vote by written ballot, with a comment period of 75 days.

Conceptual framework: elements. The Board continued its discussion of the definition of an asset.  The Board decided that: 

Conceptual framework: measurement. The Board discussed an approach for developing a proposed measurement chapter of FASB Concepts Statement No. 8, Conceptual Framework for Financial Reporting. The Board made no decisions.