Summary of 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.
May 26, 2011 FASB Board Meeting
Accounting for financial instruments: classification and measurement. The Board discussed three topics related to the classification and measurement of financial instruments:
Practicability Exception for Nonmarketable Equity Securities Held by
The Board decided at the March 2, 2011 meeting that for nonpublic entities, a practicability exception to fair value measurement should be provided for investments in nonmarketable equity securities. The practicability exception would permit nonmarketable equity securities to be measured at cost less any impairment plus upward adjustments in fair value being recognized if information about a change in price is observable.
At today’s meeting, the Board discussed further refinement of the measurement of the practicability exception and tentatively decided that a nonpublic entity should use observable price changes in orderly transactions for the identical or similar financial asset with the same issuer to be used as an input for adjusting the carrying value of a nonmarketable equity security. When information about a change in price is observable, a nonpublic entity would be required to adjust the carrying value of a nonmarketable equity security upward or downward.
The Board also discussed the impairment model for a nonmarketable equity security accounted for under the practicability exception. The Board tentatively decided that an entity would apply a single-step approach in which an entity assesses qualitative factors (that is, impairment indicators) to determine whether it is more likely than not the fair value of a nonmarketable equity security is less than its carrying amount (that is, an impairment exists). If an impairment exists, an impairment loss would be recognized in earnings equal to the entire difference between the investment’s carrying value and its fair value.
Application of and Criteria for the Equity Method of Accounting
The Board discussed the application of and criteria for the equity method of accounting. The Proposed Update included a “related operations” criterion, in addition to the “significant influence” criterion, which exists under current GAAP, for qualifying for the equity method of accounting. The Board decided to retain only the “significant influence” criteria, which leaves the criteria for the equity method of accounting unchanged from current GAAP. The Board directed the staff to consider the implications of additional qualitative disclosures around investments accounted for under the equity method.
The Board discussed whether an unfettered fair value option should be allowed for equity method investments. The Board decided that a fair value option is not permitted for equity method investments. The Board also directed the staff to provide alternatives for criteria under which equity investments of “significant influence” must be carried by an entity at fair value through net income. The staff will present these alternatives to the Board at a future meeting.
Impairment of Equity Method Investments
The Board discussed alternatives for the impairment of equity method investments. The Board decided that an entity would apply a single-step approach in which an entity assesses qualitative factors (that is, impairment indicators) to determine whether an equity method investment is impaired. The Board directed the staff to draft language that would allow for a single impairment model to be applied to both marketable and nonmarketable equity method investments.
The Board decided that an entity that accounts for an investment under the equity method may not reverse previously recognized impairment losses.
Statement of comprehensive income. The Board met to discuss a change to the effective date for the final Accounting Standards Update, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, and to decide whether to apply this change to nonpublic entities only.
The Board decided to include an extended effective date for nonpublic entities only, which will require nonpublic entities to apply the guidance in the Update for fiscal years ending after December 15, 2012, and interim periods thereafter. Public entities will be required to apply the guidance in the Update for fiscal years, and the interim periods within those years, beginning after December 15, 2011, as decided at the November 2010 joint Board meeting.