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.

December 22, 2009 Board Meeting

 Embedded credit derivatives scope exception.

The Board decided to revise the proposed Accounting Standards Update, Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives, by removing guidance from the examples that is not related to the original purpose of the project. In particular, the Board decided to remove:
  1. The bifurcation guidance from the examples on synthetic collateralized debt obligations
     
  2. The supplemental commentary on the application of the clearly-and-closely-related notion
     
  3. The reminder of the application of other relevant accounting guidance
     
  4. The reminder of the disclosure requirements for credit derivatives.
Consequently, the final Update will clarify that:
  1. Under paragraphs 815-15-15-8 and 15-9, the transfer of credit risk that is only in the form of subordination of one financial instrument to another (thereby redistributing credit risk) is an embedded derivative feature that should not be subject to potential bifurcation and separate accounting.
     
  2. An embedded credit derivative feature that is in a beneficial interest in a securitized financial asset and that exposes the holder of an interest in a tranche of that securitized financial instrument to the possibility (however remote) of being required to make potential future payments (not merely receive reduced cash inflows) should be considered to be not clearly and closely related to the host contract and thus meets the criterion in paragraph 815-15-25-1(a).
The Board also decided to make it easier to transition to the new requirements by providing a fair value option. By electing that option an entity would not need to evaluate whether an embedded credit derivative feature exists that would require bifurcation. An entity would be required to elect the fair value option at the beginning of the reporting period of adoption.

The Board decided to require separate disclosure of gross gains and gross losses that make up the cumulative-effect adjustment resulting from adoption of the final Update.

The Board decided that the guidance should be effective for each entity's first fiscal quarter reporting period beginning after June 15, 2010. The Board decided that early adoption will be allowed only for fiscal quarters that begin after the issuance of the final Update. The Board clarified that if an entity decides to adopt the guidance early, the election of the fair value option would still have to be made at the beginning of that fiscal quarter.

 Reconsideration of the scope Statement 160. The Board discussed whether a conveyance of an oil and gas business should be accounted for in accordance with the guidance on (a) decreases in ownership of a subsidiary in Topic 810, Consolidation, or (b) mineral right conveyances and related transactions in Topic 932, Extractive Activities—Oil and Gas. The Board decided that an entity would account for conveyance transactions using the mineral rights conveyance guidance. The Board directed the staff to draft a final Accounting Standards Update for vote by written ballot.