Tentative Board Decisions
Tentative Board decisions are provided for those interested in
following the Board’s deliberations. All of the reported decisions are
tentative and may be changed at future Board meetings.
September 16, 2015 FASB Board Meeting
Insurance—Targeted Improvements to the Accounting for Long-Duration Contracts.
The Board decided to require insurance entities to measure benefits
with other-than-nominal capital market risk associated with
nontraditional contracts at fair value. At a future meeting, the Board
will discuss whether the change in fair value that is attributable to an
entity’s own credit risk should be recognized in other comprehensive
The Board also discussed the accounting for participating life insurance contracts. No technical decisions were made.
Disclosures about Interest Income on Purchased Debt Securities and Loans.
The Board discussed whether to amend the scope of the project to
include the amortization period for purchased callable debt securities.
The Board decided to amortize all premiums to the first call date and
all discounts to the maturity date.
The Board directed the staff to research the disclosure requirements
related to the accounting for interest income on callable debt
securities and callable loans. The Board also directed the staff to
consider whether and how to limit the scope of the instruments subject
to the change.
Liabilities and Equity—Targeted Improvements.
The Board discussed the accounting for (1) equity-linked financial
instruments containing “down round” features and (2) the indefinite
deferral of Topic 480, Distinguishing Liabilities from Equity, for
mandatorily redeemable financial instruments for certain nonpublic
entities and certain mandatorily redeemable noncontrolling interests.
Accounting for Instruments with Down-Round Features
The Board decided to change the accounting for an equity-linked
financial instrument with a down-round feature. A down-round feature is a
provision in an equity-linked financial instrument, such as a warrant
or a convertible instrument, that provides for a downward adjustment of
the exercise price specified in the contract in certain circumstances.
The Board decided that in determining whether the instrument should be
classified as a liability or equity instrument, an entity would not
consider the down-round feature when assessing whether the instrument is
indexed to its own stock. However, the effect of the feature would be
recognized when the feature is triggered, as follows:
The Board decided that instruments included in the scope of this
guidance are those that give the holder the option to purchase equity
shares at a fixed strike price that would be reduced if the entity sells
shares of its common stock for an amount less than the initial strike
price or issues an equity-linked financial instrument with a strike
price below the initial strike price of the instrument.
- For a financial instrument classified as equity, the fair value
of the effect of the down-round feature would be recognized in equity as
a deemed dividend.
- For a financial instrument classified as a liability, the fair
value of the effect of the down-round feature, when triggered, would be
recognized through a charge to net income.
For financial instruments with down-round features that have been
triggered during the reporting period, the Board decided that an entity
would disclose that the feature has been triggered and where the effect
of the down-round feature is recorded (that is, retained earnings or
The Board decided to require entities to transition to the proposed
guidance by applying the proposed guidance to outstanding instruments as
of the effective date of the change, with no adjustments to prior
periods presented (a cumulative-effect approach). The cumulative effect
of the change would be recognized as an adjustment of the opening
balance of retained earnings in the annual or interim period of
adoption. The Board decided that entities would not be required to
provide the transition disclosures in paragraphs 250-10-50-1(b)(2) and
50-3 of Topic 250, Accounting for Changes and Error Corrections, in the
period of adoption.
Indefinite Deferral in Topic 480 Related to Mandatorily Redeemable
Financial Instruments of Certain Nonpublic Entities and Certain
Mandatorily Redeemable Noncontrolling Interests
The Board decided to replace the indefinite deferral in Topic 480 with a
scope exception in order to improve the readability of the Accounting
Standards Codification. The scope exception will be defined using the
current scope of the deferral, based on a “nonpublic entity that is not
an SEC registrant” and the SEC registrant definition in Topic 480.
The Board decided to expose these proposed changes for at least 60 days,
providing a comment period ending no earlier than February 16, 2016.
The Board directed the staff to draft a proposed Accounting Standards Update for a vote by written ballot.