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.
June 12, 2012 FASB/IASB Joint Board MeetingInsurance
contracts. The FASB and the IASB continued their discussions on
insurance contracts by exploring a method of measuring earned premiums for
presentation in the statement of comprehensive income and considering how to
attribute cash flows to the unbundled components of bundled insurance contracts
in order to measure those unbundled components.
Method of Measuring
The Boards discussed an approach to derive a measure
of earned premiums. The Boards agreed to explore further the usefulness of the
information and the extent of any operational difficulties. In particular, the
Boards would seek feedback from users and preparers. No decisions were made at
How to Attribute Cash Flows to Unbundled
The Boards tentatively decided that:
- An insurer should attribute cash flows to an investment component and to
an embedded derivative on a standalone basis. This means that an insurer would
measure an investment component or embedded derivative as if it had issued
that item as a separate contract. The insurer would thus not include the
effect of any cross-subsidies or discounts/supplements in the investment
- After excluding the cash flows related to unbundled investment components
and embedded derivatives:
- The amount of consideration and discounts/supplements should be
attributed to the insurance component and/or service component in accordance
with proposals in paragraphs 70-80 of the Exposure Draft, Revenue from
Contracts with Customers.
- Cash outflows (including expenses and acquisition costs) that relate
directly to one component should be attributed to that component. Cash
outflows related to more than one component should be allocated to those
components on a rational and consistent basis, reflecting the costs that the
insurer would expect to incur if it issued that component as a separate
contract. Once cash outflows are attributed to components, the insurer would
account for those costs in accordance with the recognition and measurement
requirements that apply to that component.
The Boards will continue their discussion on insurance
contracts in the week commencing July 16, 2012.
2012 FASB/IASB Joint Board Meeting
The IASB and the FASB discussed lessee accounting and
whether there should be different lease expense recognition patterns for
different leases. The Boards tentatively decided that a lessee should account
The Boards also tentatively decided
that a lessee should distinguish between those different leases based on whether
the lessee acquires and consumes more than an insignificant portion of the
underlying asset over the lease term. That principle should be applied by using
a practical expedient based on the nature of the underlying asset as follows:
- Some leases using an approach similar to that proposed in the 2010 leases
Exposure Draft; and
- Some leases using an approach that results in a straight-line lease
expense (straight-line approach).
- Leases of property (land or a building—or part of a building—or both)
should be accounted for using the straight-line approach unless:
- The lease term is for the major part of the economic life of the
underlying asset; or
- The present value of fixed lease payments accounts for substantially all
of the fair value of the underlying asset.
- Leases of assets other than property should be accounted for using an
approach similar to that proposed in the 2010 leases Exposure Draft
- The lease term is an insignificant portion of the economic life of the
underlying asset; or
- The present value of the fixed lease payments is insignificant relative
to the fair value of the underlying asset.
The Boards discussed lessor accounting and tentatively
decided to change the tentative decisions on the lessor accounting model that is
used to determine when the receivable and residual approach would
The Boards tentatively decided that a lessor should distinguish
between leases to which the receivable and residual approach applies and leases
to which an approach similar to operating lease accounting applies using the
same criteria as noted above for lessee accounting. Consequently, a lessor would
apply the receivable and residual approach to leases for which the lessee
acquires and consumes more than an insignificant portion of the underlying asset
over the lease term.
for financial instruments: classification and measurement.
The Scope of the Fair Value through Other Comprehensive Income
(FVOCI) Category for Debt Instruments (Joint FASB and IASB
The FASB and the IASB discussed the scope of
the FVOCI measurement category for debt instruments and reaffirmed that a debt
instrument will be measured at FVOCI only if:
Value Option (FASB-only Discussion)
- The debt instrument passes the contractual cash flow characteristics
assessment (as discussed by the Boards at the February 2012 joint Board
- The debt instrument is managed within the relevant business model (as
discussed by the Boards at the May 2012 joint Board meeting).
discussed the fair value option for financial assets and financial liabilities.
The FASB tentatively decided that an entity may, at initial recognition,
irrevocably elect a fair value option for the following financial
Fair Value Option (IASB-only
- A hybrid financial liability may be designated at fair value through net
income (FVNI) unless:
- The embedded derivative or derivatives do not significantly modify the
cash flows that otherwise would be required by the contract;
- It is clear with little or no analysis when a similar hybrid instrument
is first considered that separation of the embedded derivative or
derivatives is prohibited.
- A group of financial assets and financial liabilities may be designated at
FVNI if both of the following conditions are met:
- The entity manages the net exposure relating to those financial assets
and financial liabilities (which may be derivative instruments) on a fair
value basis; and
- The entity provides information on that basis to the reporting entity's
The IASB discussed the fair value option for
debt investments measured at FVOCI and tentatively decided to extend the current
eligibility condition in IFRS 9, Financial Instruments, for designating
financial assets under the "accounting mismatch" fair value option to debt
investments that would otherwise be measured at FVOCI. Thus these debt
instruments may be measured at FVNI if doing so would eliminate or significantly
reduce an accounting mismatch.
The FASB and the IASB discussed:
Accounting by an Investment Company for an Investment
- Accounting by an investment company for an investment company
- Accounting by a noninvestment company parent for an investment company
The Boards decided that an investment company
should measure all controlling financial interests in another investment company
at fair value (including in both master-feeder and fund-of-funds structures),
rather than consolidating those subsidiaries. However, the FASB will discuss at
a future FASB meeting whether an investment company parent entity that is
regulated under the SEC's Investment Company Act of 1940 should be required to
consolidate its wholly owned investment company subsidiaries.
additionally decided to require a feeder fund to attach its master fund's
financial statements along with its financial statements in a master-feeder
structure. The FASB will discuss at a future FASB meeting whether a
master-feeder structure should be defined.
The IASB decided not to
require an investment company to attach the financial statements of its
investees in any circumstances.
Accounting by a Noninvestment
Company Parent for an Investment Company Subsidiary
The FASB decided
to retain the requirement in current U.S. GAAP that a parent entity should
retain the specialized accounting used by an investment company
The IASB decided that a noninvestment company parent should
not retain the exception from consolidation used for the controlled investees of
an investment company subsidiary.