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 1, 2011 FASB/IASB Joint Videconference Board
The IASB and the FASB continued their discussion from February 2011 on how an entity would test a contract to determine whether it is onerous.
The Boards tentatively decided that the onerous test should apply to all contracts, including those that are intentionally priced at a loss in expectation of profits to be generated on subsequent contracts with the customer (that is, “loss-leader” contracts).
The Boards tentatively affirmed the proposal in the Exposure Draft, Revenue from Contracts with Customers, that the costs to be included in the onerous test and in measuring an onerous liability should be the costs that relate directly to satisfying the remaining performance obligations (as described in paragraph 58 of the Exposure Draft). The Boards observed that when an entity is committed to cancelling a contract and has the contractual right to do so, the costs would reflect the amount that the entity would have to pay to cancel the contract (for example, the amount it would have to refund the customer, including any penalties). The Boards also observed that cancelling the contract may give rise to other obligations that would be accounted for in accordance with IAS 37, Provisions, Contingent Liabilities and Contingent Assets, or Topic 450, Contingencies, of the FASB Accounting Standards Codification®.
Insurance contracts. The IASB and the FASB continued their discussions on insurance contracts on the following subjects:
Locking in the Discount Rate
The Boards tentatively affirmed the proposal in the IASB’s Exposure Draft, Insurance Contracts, and the FASB’s Discussion Paper, Preliminary Views on Insurance Contracts, that the discount rate used to measure all insurance contracts should be a current rate that is updated each reporting period (that is, not to lock in the discount rate for any insurance contract).
Discounting Non-Life Contract Liabilities
The IASB’s Exposure Draft and the FASB’s Discussion Paper proposed that discounting should be used in the measurement of all insurance liabilities.
The Boards tentatively decided to require discounting for all non-life long-tail claims.
The Boards tentatively agreed that discounting of insurance liabilities should not be required when the effect of discounting would be immaterial. The Boards asked the staff to develop, as part of the papers on the modified approach, additional guidance for determining when discounting a contract with a short-tail claim would be considered immaterial.
The Boards tentatively affirmed the proposal to exclude from the scope of the guidance some fixed-fee service contracts that have as their primary purpose the provision of services. The Boards will consider in a future meeting how to identify such contracts.
The Boards tentatively affirmed all of the other scope exceptions that were proposed in the IASB’s Exposure Draft and the FASB’s Discussion Paper.
Financial statement presentation. The staff presented the results of its outreach activities related to the July 2010 staff draft of an Exposure Draft on financial statement presentation. The Boards reiterated their October 2010 decision that they will return to this project when they have the requisite capacity.
No decisions were made regarding technical aspects of the project or the timing of future Board meetings.
March 2, 2011 FASB/IASB Joint Videoconference Board Meeting
Financial Guarantee Contracts
The IASB's Exposure Draft, Insurance Contracts, proposed that the insurance contracts standard would apply to all financial guarantee contracts, as defined in IFRSs. However, at this meeting, the IASB tentatively decided:
The FASB directed the staff to develop implementation guidance on which
direct costs related to the acquisition of a portfolio of contracts would be
included in the cash flows of insurance contracts.
The IASB tentatively decided that the acquisition costs to be included in the initial measurement of a portfolio of insurance contracts should be all the costs that the insurer will incur in acquiring the portfolio, including costs that relate directly to the acquisition of the portfolio, such as commissions. No distinction would be made between successful efforts and unsuccessful efforts.
The Boards discussed which types of acquisition costs would be included in the cash flows of insurance contracts and directed the staff to draft application guidance on this topic for the Boards' consideration.
Leases. The FASB and the IASB discussed the application of the right-of-use model to all lease arrangements and discussed the scope of the leases standard.
Confirmation of the Right-of-Use Model
The Boards affirmed the decision in the leases Exposure Draft to apply a right-of-use model to all lease arrangements. Under that model, a lessee in an arrangement that is, or contains, a lease would recognize an asset representing its right to use an underlying asset during the lease term and a liability representing its obligation to make lease payments during the lease term. Application of the right-of-use model by a lessor will be discussed at a future meeting.
The Boards tentatively decided that leases of intangibles are not required to be accounted for in accordance with the leases standard.
The Boards affirmed the decision in the leases Exposure Draft that the following are within the scope of the leases standard:
The Boards affirmed the decision in the leases Exposure Draft that the following are not within the scope of the leases standard:
The Boards directed the staff to perform additional research and present an analysis at a future meeting of whether the following are within the scope of the leases standard:
The Boards will continue their redeliberations of the leases Exposure Draft at future meetings.
Effective dates and transition methods. In October 2010, the FASB and the IASB each published a document requesting views from stakeholders about the time and effort that will be involved in adopting several new standards and when those standards should be effective. At the March 2, 2011 meeting, the staff presented a summary of the feedback received. The staff highlighted the main similarities and differences between the views expressed by FASB and IASB stakeholders.
In view of the limited numbers of responses received from users and, for the FASB, private entities, the Boards directed the staff to undertake further outreach activities from these groups as well as other stakeholders such as third-party financial software developers and data aggregators that are a source of financial information for financial statement users. Additionally, the Boards directed the staff to analyze input received from investors and other users about what transitional disclosures might be needed to help users understand the effect of the new requirements and develop recommendations for consideration at a future meeting.
The Boards discussed possible effective dates for their joint projects on Leases, Revenue Recognition, and Insurance Contracts. The Boards also discussed how they would establish effective dates and transition methods for the various other projects under way. The Boards indicated that they would determine the effective dates for the projects taking into account the significance of the accounting changes required and the methods of transition. In doing so, they will provide ample time for stakeholders to apply the new requirements.
The Boards tentatively decided to determine the effective dates and transition methods for their projects on Other Comprehensive Income, Fair Value Measurements, Financial Instruments with Characteristics of Equity, and Financial Statement Presentation on a standard-by-standard basis, as the projects come to a conclusion. The IASB decided it would determine effective dates and transition methods for its Financial Instruments project as each project phase is completed. The FASB has yet to decide on how it will determine the effective date for its Financial Instruments project.