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 4,
2017 FASB Board Meeting
Financial
instruments—credit losses implementation
The Board discussed an issue associated with determining the estimated life of a
credit card receivable that was unresolved at the Credit Losses Transition
Resource Group (TRG) meeting on June 12, 2017.
The Board agreed with the
staff’s recommendation that when estimating the amount of expected future
payments on credit card receivables, both of the following methods of
determining the payment amount are acceptable:
- Include all payments expected to be collected from the borrower.
- Include only a portion of payments expected to be collected from the
borrower.
The Board also views this issue as separate from the payment
allocation issue discussed at the June 12, 2017 TRG meeting. Therefore, any
combination of views on payment allocation and payment determination are
acceptable.
Collaborative
arrangements—targeted improvements. The Board discussed potential
improvements to Topic 808, Collaborative Arrangements. The topics were as
follows:
- Revenue Scoping— Clarify when the revenue guidance in Topic 606,
Revenue from Contracts with Customers, should be applied to transactions
between collaboration participants in a collaborative arrangement within the
scope of Topic 808
- Unit of Accounting— Expand the scope of the project to provide
specific guidance on determining the unit of accounting within Topic 808
- Non-Revenue Model— Expand the scope of the project to provide an
accounting model for transactions between participants in a collaborative
arrangement within the scope of Topic 808 that do not meet the criteria to
apply the revenue model, as developed in the revenue scoping part of the
project.
Revenue Scoping
The Board reached the
following tentative decisions:
- Certain transactions between collaborative participants that are unrelated
to third-party sales outside the collaboration could result in revenue under
Topic 606.
- Topic 606 should be applied to identified units of accounting when the
collaborative participant is a customer (in the context of the unit of
accounting).
- When the identified units of accounting between collaborative participants
are deemed to be within the scope of Topic 606, an entity is required to apply
the entire accounting model in Topic 606, including recognition, measurement,
and disclosure requirements.
- An entity is precluded from presenting a transaction with a collaborative
participant as revenue if it does not meet the scope to be accounted for under
Topic 606.
The Board tentatively decided not to provide additional
implementation guidance to clarify the Topic 606 concepts of transfer of control
and customer in the context of collaborative arrangements. However, the Board
asked the staff to discuss the need for implementation guidance with
stakeholders.
Unit of Accounting
The Board decided to
expand the scope of the project to address the guidance for unit of accounting
in Topic 808 to be consistent with the distinct goods or services guidance in
Topic 606.
Non-Revenue Model
The Board asked the staff to
discuss the staff’s ideas for a non-revenue model with stakeholders to obtain
feedback on the potential impacts of the model to current practice and to
discuss potential operational challenges with applying the non-revenue model.
Insurance—targeted
improvements to the accounting for long-duration contracts. The Board
redeliberated the amendments in proposed Accounting Standards Update,
Financial Services—Insurance (Topic 944): Targeted Improvements to the
Accounting for Long-Duration Contracts. The meeting topics discussed were
participating insurance contracts, deferred acquisition costs, and market risk
benefits.
Participating Insurance Contracts
The Board
decided the following:
- The existing guidance for the liability for future policy benefits for
participating insurance contracts should be retained. The proposed changes to
the amortization of deferred acquisition costs would apply to participating
insurance contracts.
Deferred Acquisition Costs
The
Board decided the following:
- The amortization of deferred acquisition costs should be simplified.
- The amortization method in the proposed Update should be replaced with a
principle in which deferred acquisition costs would be amortized on a constant
basis over the expected life of the contract.
- Deferred acquisition costs should be written off for actual experience in
excess of expected experience, without consideration of contract
profitability.
- The transition guidance on deferred acquisition costs should be aligned
with the transition guidance on the liability for future policy benefits.
Specifically, an insurance entity should apply the proposed amendments on the
amortization of deferred acquisition costs to the existing carrying amount at
the transition date, adjusted for the removal of any related amounts in
accumulated other comprehensive income. 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) using actual
historical experience information. For consistency, the same transition method
would apply to both the liability for future policy benefits and deferred
acquisition costs. The option would be elected at the same issue-year level
and would be applied entity-wide for that issue year and all subsequent issue
years.
Market Risk Benefits
The Board decided the
following:
- The proposed market risk benefit scope should be expanded to include
general account deposit (or account balance) products (for example, fixed
indexed annuities).
- Market risk benefits should be measured at fair value.
- Gains and losses resulting from changes in fair value should be recognized
in net income, except for changes in the instrument-specific credit risk.
Gains and losses resulting from changes in the instrument-specific credit risk
should be recognized in other comprehensive income.
- An insurance entity would apply the proposed amendments to market risk
benefits retrospectively to all prior periods. An insurance entity would be
allowed to use hindsight.
Next Steps
In future meetings, the
Board will discuss the following topics:
- Presentation and disclosures
- Effective date.
Disclosure
framework—Board’s decision process The Board discussed issues related to the
proposed FASB Concepts Statement, Conceptual Framework for Financial
Reporting—Chapter 8, Notes to Financial Statements.
The Board
decided to exclude financial statements of employee benefit plans from the scope
of the proposed Concepts Statement.
Next Steps
The
staff plans to continue redeliberating issues related to the Board’s decision
process. Additionally, the Board will redeliberate materiality in the context of
the Conceptual Framework and the FASB Accounting Standards
Codification®.