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.

January 12, 2011 FASB Board Meeting

Balance sheet—offsetting. The Board clarified that the scope of the criteria for offsetting relates to financial assets and liabilities and all derivative assets and liabilities (both financial and nonfinancial). The ability to offset any other assets and liabilities would not be permitted.

Consolidations: voting interest entities. The Board discussed the feedback received from participants at the November 2010 roundtable meetings and through the related comment letters. This feedback focused on the previous joint decisions for the consolidation of voting interest entities and variable interest entities. Considering this feedback:
  1. The Board decided not to develop a single, control-based consolidation model that would apply to both voting interest entities and variable interest entities. This decision is primarily based on the projects currently on the agenda and the technical plan for completion of those projects, as well as the Board’s issuance of Statement 167 (now included in Subtopic 810-10 of the FASB Accounting Standards Codification®).
  2. The Board decided not to amend the guidance related to consolidating voting interest entities to incorporate a concept of “effective control,” whereby an entity’s minority ownership of voting interests relative to other shareholders’ holdings and the dispersion of the other shareholders, in and of itself, is determinative of an entity’s power.
  3. The Board decided not to incorporate potential voting rights (for example, options and conversion instruments) into a reporting entity’s analysis of whether it controls another voting interest entity.
The Board acknowledged that these decisions would result in a consolidation model that would be inconsistent with the IASB’s forthcoming consolidations standard. It stressed, however, that constituents were strongly opposed to the IASB’s decisions and that the Board has concerns that the definition of control is inconsistent with the IASB’s application guidance. The Board instructed the staff to determine whether there are elements of the voting interest model that could be improved, such as how related parties affect the consolidation analysis for voting interest entities.

The Board also discussed how to proceed with the development of the guidance that would be used to analyze whether a variable interest entity’s decision maker is an agent or a principal. This guidance would replace the agent-principal analysis originally issued in Statement 167 and the deferral of Statement 167 for certain interests (Accounting Standards Update 2010-10). This Board meeting focused on four factors that would be evaluated to determine whether a decision maker is an agent or a principal. These factors were previously agreed to jointly with the IASB as part of the joint consolidation project. Specifically, at today’s meeting, the Board tentatively decided:
  1. When evaluating an entity with no ongoing decisions or in which the decisions are restricted by law or regulations, the power factor should be assessed in a manner similar to the power determination in the primary beneficiary analysis. Accordingly, the analysis should consider the entity’s purpose and design when analyzing the scope of a decision maker’s authority.
  2. When considering the rights held by others, a reporting entity should consider liquidation rights, (but not redemption rights) in a manner identical to other removal rights. Accordingly, based on the Board’s previous tentative decision, although not determinative, removal rights and liquidation rights may be considered when held by more than a single party. Additionally, the existence of a board of directors holding such rights should be considered in the analysis. However, rights held by a board of directors would not be considered to be unilateral.
  3. If a decision maker’s remuneration (that is, compensation) arrangement is considered a market-based fee structure, the reporting entity would place more emphasis on its exposure to downside risk (for example, invested capital or guarantees) in its analysis. The Board also does not consider the nonreceipt of a fee as exposure to downside risk.
  4. To reaffirm its previous tentative decision to include rights held by a reporting entity’s related parties in the decision maker analysis, when those related parties act on behalf of the reporting entity.
The Board also discussed other issues related to the agent-principal analysis that had not been previously discussed and decided:
  1. To amend the guidance for determining whether a decision maker’s fees are considered to be a variable interest entity to be consistent with the tentative decisions related to evaluating a decision maker’s capacity.
  2. To amend guidance in Subtopic 810-20 that relates to the evaluation of whether kick-out rights and participating rights are considered substantive to be consistent with guidance in the proposed agent-principal analysis for variable interest entities.