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.
March 29, 2011 FASB/IASB Joint Videoconference Board
Accounting for financial instruments: impairment. The IASB and the FASB discussed impairment accounting for purchased financial assets, including whether an impairment allowance should be established upon acquisition and the subsequent interest income recognition for purchased financial assets.
At the March 22nd meeting, the Boards discussed whether or not originated instruments and purchased instruments subject to impairment accounting should have consistent accounting models for interest income recognition and impairment. The Boards did not reach a decision on this question and asked the staff to prepare examples for further discussion.
The Boards continued their discussion on these issues using examples provided by the staff. The Boards tentatively decided that for purchased financial assets that do not have an explicit expectation of losses (that is, loans recognized in the “good book” upon acquisition) when analyzed at the individual asset level, even when acquired as part of a portfolio, an entity should account for impairment in the same way as for originated loans. Interest income for these assets would be recognized on the basis of contractual cash flows. This decision effectively aligns impairment accounting and interest income recognition for originated loans and “good” purchased financial assets (those that do not have an explicit expectation of losses at the individual asset level at acquisition). The Boards will determine the appropriate impairment accounting model for these loans in redeliberating the Supplementary Document, which is currently open for comment.
The Boards also discussed impairment accounting, including interest income recognition, for financial assets purchased where an explicit expectation of loss exists at the individual financial asset level (that is, where the loan goes into a “bad book” at acquisition). The Boards tentatively decided that interest income recognized should be based on expected collectible cash flows estimated at the date of acquisition (that is, accrete purchase price to expected cash flows). As a result of limiting the recognition of interest income for these credit deteriorated assets, a separate impairment expense would not be recognized at the date of acquisition.
The Boards noted that their decisions at this meeting were subject to future discussions on pending issues. These issues include (1) determining how to differentiate purchased portfolios of financial assets into “good books” and “bad books” and the underlying accounting and (2) the necessity and application of “nonaccrual” guidance.
Insurance contracts. The IASB and the FASB continued their discussions on insurance contracts by considering the issue of whether the margin should be adjusted for changes in estimates of expected cash flows (that is, unlocking the margin) and an update on the Insurance Working Group meeting held on March 24, 2011.
Unlocking the Margin
The Boards discussed whether the residual or composite margin should be locked-in at inception (as proposed in the IASB’s Exposure Draft, Insurance Contracts, and the FASB’s Discussion Paper, Preliminary Views on Insurance Contracts) and, if not, how the margin might be unlocked.
The Boards were not asked to make any decisions on this topic.
Insurance Working Group Meeting
The Boards were updated on the March 24, 2011 Insurance Working Group meeting.
No decisions were made.