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.

Wednesday, October 4, 2017 FASB Board Meeting

Financial instruments—credit losses implementation The Board discussed an issue associated with determining the estimated life of a credit card receivable that was unresolved at the Credit Losses Transition Resource Group (TRG) meeting on June 12, 2017.

The Board agreed with the staff’s recommendation that when estimating the amount of expected future payments on credit card receivables, both of the following methods of determining the payment amount are acceptable:
  1. Include all payments expected to be collected from the borrower.
  2. Include only a portion of payments expected to be collected from the borrower.
The Board also views this issue as separate from the payment allocation issue discussed at the June 12, 2017 TRG meeting. Therefore, any combination of views on payment allocation and payment determination are acceptable.

Collaborative arrangements—targeted improvements. The Board discussed potential improvements to Topic 808, Collaborative Arrangements. The topics were as follows:
  1. Revenue Scoping— Clarify when the revenue guidance in Topic 606, Revenue from Contracts with Customers, should be applied to transactions between collaboration participants in a collaborative arrangement within the scope of Topic 808
  2. Unit of Accounting— Expand the scope of the project to provide specific guidance on determining the unit of accounting within Topic 808
  3. Non-Revenue Model— Expand the scope of the project to provide an accounting model for transactions between participants in a collaborative arrangement within the scope of Topic 808 that do not meet the criteria to apply the revenue model, as developed in the revenue scoping part of the project.
Revenue Scoping

The Board reached the following tentative decisions:
  1. Certain transactions between collaborative participants that are unrelated to third-party sales outside the collaboration could result in revenue under Topic 606.
  2. Topic 606 should be applied to identified units of accounting when the collaborative participant is a customer (in the context of the unit of accounting).
  3. When the identified units of accounting between collaborative participants are deemed to be within the scope of Topic 606, an entity is required to apply the entire accounting model in Topic 606, including recognition, measurement, and disclosure requirements.
  4. An entity is precluded from presenting a transaction with a collaborative participant as revenue if it does not meet the scope to be accounted for under Topic 606.
The Board tentatively decided not to provide additional implementation guidance to clarify the Topic 606 concepts of transfer of control and customer in the context of collaborative arrangements. However, the Board asked the staff to discuss the need for implementation guidance with stakeholders.

Unit of Accounting

The Board decided to expand the scope of the project to address the guidance for unit of accounting in Topic 808 to be consistent with the distinct goods or services guidance in Topic 606.

Non-Revenue Model

The Board asked the staff to discuss the staff’s ideas for a non-revenue model with stakeholders to obtain feedback on the potential impacts of the model to current practice and to discuss potential operational challenges with applying the non-revenue model.

Insurance—targeted improvements to the accounting for long-duration contracts. The Board redeliberated the amendments in proposed Accounting Standards Update, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. The meeting topics discussed were participating insurance contracts, deferred acquisition costs, and market risk benefits.

Participating Insurance Contracts

The Board decided the following:
  1. The existing guidance for the liability for future policy benefits for participating insurance contracts should be retained. The proposed changes to the amortization of deferred acquisition costs would apply to participating insurance contracts.
Deferred Acquisition Costs

The Board decided the following:
  1. The amortization of deferred acquisition costs should be simplified.
  2. The amortization method in the proposed Update should be replaced with a principle in which deferred acquisition costs would be amortized on a constant basis over the expected life of the contract.
  3. Deferred acquisition costs should be written off for actual experience in excess of expected experience, without consideration of contract profitability.
  4. The transition guidance on deferred acquisition costs should be aligned with the transition guidance on the liability for future policy benefits. Specifically, an insurance entity should apply the proposed amendments on the amortization of deferred acquisition costs to the existing carrying amount at the transition date, adjusted for the removal of any related amounts in accumulated other comprehensive income. An insurance entity would have the option to apply the proposed amendments retrospectively (with a cumulative catch-up adjustment to the opening balance of retained earnings) using actual historical experience information. For consistency, the same transition method would apply to both the liability for future policy benefits and deferred acquisition costs. The option would be elected at the same issue-year level and would be applied entity-wide for that issue year and all subsequent issue years.
Market Risk Benefits

The Board decided the following:
  1. The proposed market risk benefit scope should be expanded to include general account deposit (or account balance) products (for example, fixed indexed annuities).
  2. Market risk benefits should be measured at fair value.
  3. Gains and losses resulting from changes in fair value should be recognized in net income, except for changes in the instrument-specific credit risk. Gains and losses resulting from changes in the instrument-specific credit risk should be recognized in other comprehensive income.
  4. An insurance entity would apply the proposed amendments to market risk benefits retrospectively to all prior periods. An insurance entity would be allowed to use hindsight.
Next Steps

In future meetings, the Board will discuss the following topics:
  1. Presentation and disclosures
  2. Effective date.
Disclosure framework—Board’s decision process The Board discussed issues related to the proposed FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8, Notes to Financial Statements.

The Board decided to exclude financial statements of employee benefit plans from the scope of the proposed Concepts Statement.

Next Steps

The staff plans to continue redeliberating issues related to the Board’s decision process. Additionally, the Board will redeliberate materiality in the context of the Conceptual Framework and the FASB Accounting Standards Codification®.