SUMMARY OF BOARD DECISIONS
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 MeetingBalance
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.
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:
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 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®).
- 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.
- 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 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:
The Board also
discussed other issues related to the agent-principal analysis that had not been
previously discussed and decided:
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.