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, October 16, 2019 FASB Board Meeting

Credit losses, hedging, and leases—effective dates for private companies, not-for-profit organizations, and small public companies. The Board discussed comments received on its August 2019 proposed Accounting Standards Update, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, and whether to proceed to a draft of a final Accounting Standards Update for vote by written ballot. 
 
The Board affirmed its decisions on amendments to the effective dates for:
  1. Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (Credit Losses)
  2. Accounting Standards Update No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (Hedging)
  3. Accounting Standards Update No. 2016-02, Leases (Topic 842) (Leases).
Credit Losses

The Board decided that Credit Losses will be effective for:
  1. Public business entities (PBEs) that are SEC filers, excluding entities eligible to be smaller reporting companies (SRCs) as currently defined by the SEC, for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For calendar-year-end companies, this will be January 1, 2020. The Board affirmed that the one-time determination of whether an entity is eligible to be an SRC will be based on an entity’s most recent assessment in accordance with SEC regulations as of the date that a final Update on effective dates is issued (for example, November 20, 2019). 
  2. For all other entities, the Board decided that Credit Losses will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.
That decision provides additional implementation time for entities eligible to be SRCs, PBEs that are not SEC filers, and entities that are not PBEs (including private companies, not-for-profit organizations, and employee benefit plans). For all entities, early adoption will continue to be allowed; that is, early adoption is allowed for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (that is, effective January 1, 2019, for calendar-year-end companies).     
 
As a consequential amendment, the Board decided to align the effective dates of Accounting Standards Update No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, with the amended Credit Losses effective dates. 
 
Hedging 
 
The Board decided to retain the existing effective date for Hedging for PBEs, which is for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, 
 that is, effective January 1, 2019, for calendar-year-end companies. The Board decided to defer the mandatory effective date for Hedging for all other entities by an additional year. Therefore, Hedging will be effective for entities other than PBEs for fiscal years beginning after December 15, 2020 (effective January 1, 2021, for calendar-year-end companies), and interim periods within fiscal years beginning after December 15, 2021 (January 1, 2022, for calendar-year-end companies). Early adoption will continue to be allowed. 
 
Leases
 
The Board decided to retain the existing effective date for Leases for (1) all PBEs, (2) not-for-profit conduit bond obligors, and (3) employee benefit plans that file or furnish financial statements with the SEC. That date is for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (effective January 1, 2019, for calendar-year-end companies). The Board decided to defer the mandatory effective date for Leases for all other entities by an additional year. Therefore, Leases will be effective for all other entities beginning after December 15, 2020 (January 1, 2021, for calendar-year-end companies), and interim periods within fiscal years beginning after December 15, 2021 (January 1, 2022 for calendar-year-end companies). Early adoption will continue to be allowed. 
 
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 Accounting Standards Update. The Board directed the staff to draft a final Accounting Standards Update for vote by written ballot.   
 

Insurance—effective date. The Board discussed a summary of comments received on its August 2019 proposed Accounting Standards Update, Financial Services—Insurance (Topic 944): Effective Date.

The Board affirmed its previous decisions on the effective date of Update 2018-12 on accounting for long-duration insurance contracts:
  1. For public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies, the amendments in Update 2018-12 should be effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years.
  2. For all other entities, the amendments in Update 2018-12 should be effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.
Analysis of Costs and Benefits
 
The Board concluded that it has received sufficient information and analysis to make an informed decision on the topics presented and that the expected benefits of the amendments would justify the expected costs.
 
Next Steps
 
The Board directed the staff to draft a final Accounting Standards Update for vote by written ballot.


Hedging—last-of-layer method. The Board discussed the following topics that were originally introduced at its August 21, 2019 educational meeting on last-of-layer hedging.
 
Multiple-Layer Issues
 
In allowing an entity to designate multiple layers (that is, more than one hedging relationship associated with a closed portfolio of prepayable financial assets or one or more beneficial interests secured by a portfolio of prepayable financial instruments), the Board decided that it would:
  1. Require an entity to dedesignate the entirety of one or more hedging relationships affected by an actual breach. An actual breach occurs when the sum of the hedged items associated with a closed portfolio is greater than the total assets in the closed portfolio in the current period.
  2. Continue to allow partial dedesignation for anticipated breaches. An anticipated breach occurs when the sum of the hedged items is not in breach in the current period but is expected to be in breach in a future period.
  3. Permit an entity to document at hedge inception a sequence in which hedging relationships associated with a closed portfolio would be dedesignated in the case of an actual breach. If an entity does not document a dedesignation sequence at hedge inception and an actual breach occurs, the entity would be required to dedesignate all hedging relationships associated with the closed portfolio.
  4. Require that all hedging relationships associated with the closed portfolio be supported by all the assets in the closed portfolio. That is, all the assets in the closed portfolio must have a contractual maturity date after the latest partial-term hedge matures, and all financial assets in the closed portfolio must be prepayable by the earliest hedging relationship’s maturity date.
The Board also decided dedesignation sequencing would not apply to anticipated breaches.
 
Fair Value Hedge Basis Adjustment Issues
 
For the existing single-layer last-of-layer hedging model under current GAAP and the proposed multiple-layer model, the Board decided that it would:
  1. Prohibit an entity from allocating the fair value hedge basis adjustment to the assets in the closed portfolio during an outstanding last-of-layer hedge.
  2. Prohibit an entity from considering a last-of-layer fair value hedge basis adjustment on an outstanding hedge when determining an allowance under the current expected credit loss model.
  3. Require a last-of-layer fair value hedge basis adjustment to be presented as a reconciling item in disclosures required by other areas of GAAP.
  4. Require an entity to recognize and present the fair value hedge basis adjustment associated with an actual breach in the income statement based on how the assets that caused the breach were removed from the closed portfolio.
Next Steps

The Board directed the staff to draft a proposed Accounting Standards Update and distribute that staff draft for external review. Following external review, the staff will present to the Board any additional issues and an analysis of costs and benefits.