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 a final standard.

March 18, 2009 Board Meeting

Reconsideration of Interpretation 46(R). The Board continued its redeliberations of the Exposure Draft, Amendments to FASB Interpretation No. 46(R), and reached the following decisions:

  1. Definitions of “expected losses and expected residual returns” and “variable interest.” The Board decided to retain the existing definitions of expected losses and expected residual returns and variable interests as set out in paragraph 2 of FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities.

  2. Consideration of kick-out rights in the determination of a primary beneficiary and fiduciary responsibility. The Board affirmed its decision that enterprises should consider kick-out rights in the analysis of power in paragraph 14A(a) of the proposed amendments to Interpretation 46(R) only if those kick-out rights are substantive rights that can be unilaterally exercised by a single party (including its related parties and de facto agents).

    The Board acknowledged that retaining the guidance related to kick-out rights in the Exposure Draft results in inconsistencies with EITF Issues No. 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights,” and No. 96-16, “Investor’s Accounting for an Investee When the Investor Has a Majority of the Voting Interest but the Minority Shareholder or Shareholders Have Certain Approval or Veto Rights.” The Board considered, but decided against, adding a short-term project to reconsider that guidance at this time.

    The Board also decided to amend the guidance an entity would use to determine whether fees paid to decision makers or service providers represent a variable interest by removing paragraphs B18–B21 of Interpretation 46(R) (including the requirement for the decision maker to be subject to substantive kick-out rights). The Board meeting handout described the proposed guidance agreed to by the Board.

  3. Clarification of the power principle. The Board decided to clarify the proposed power principle as follows:

    1. Contingent power. The Board decided to provide guidance in the proposed amendments to Interpretation 46(R) to clarify that
      An enterprise must identify which activities most significantly impact the entity’s economic performance and determine whether it has the power to direct those activities. An enterprise’s ability to direct the activities of an entity when circumstances arise or events happen constitutes power if that ability relates to the activities that most significantly impact the economic performance of the entity. A reporting entity does not have to exercise its power in order to have power to direct the activities of an entity.

    2. Protective rights and participating rights. The Board decided that protective rights should not be considered in assessing whether an enterprise has the power to direct activities that most significantly impact a variable interest entity’s (VIEs) economic performance. The Board also decided that, consistent with its conclusion on kick-out rights, only substantive participating rights that can be unilaterally exercised by a single party (including related parties and de facto agents) should be considered in determining which enterprise, if any, is the primary beneficiary of a variable interest entity.

    3. The inconsistency between paragraphs 5(b)(1) of Interpretation 46(R) and paragraph 14A(a) of the proposed Statement. The Board decided to amend paragraph 5(b)(1) to be consistent with the principle in paragraph 14A(a) and to nullify FSP FIN 46(R)-3, Evaluating Whether, as a Group, the Holders of the Equity Investment at Risk Lack the Direct or Indirect Ability to Make Decisions about an Entity's Activities through Voting Rights or Similar Rights under FASB Interpretation No. 46 (revised December 2003), which provides interpretive guidance about the application of paragraph 5(b)(1) of Interpretation 46(R).

    4. Involvement in the design of a VIE. The Board decided that guidance currently in the basis for conclusions of Interpretation 46(R) regarding an entity’s involvement in the creation of an entity should be incorporated into the standard. That guidance states:

      Although a party may be significantly involved with the design of an entity, that involvement does not, in isolation, establish that party as the party with the power to direct the activities that most significantly impact the economic performance of the entity. However, that involvement may indicate that the party had the opportunity and the incentive to establish arrangements that result in the party being the variable interest holder with such power. For example, a sponsor’s explicit or implicit financial responsibility to ensure that the entity operates as designed may result in the sponsor establishing arrangements that result in the sponsor being the party with the power to direct the activities that most significantly impact the economic performance of the entity.

  4. Shared power. The Board decided to provide the following additional guidance clarifying the concept of shared power:

    Power is shared if two or more parties together have the power to direct the activities of a VIE that most significantly impact the entity’s economic performance, and each of the parties sharing power must consent to the decisions relating to those activities. The requirement to consent must be substantive in order to conclude that power is shared.

  5. The Board also agreed to add a discussion within the standard about the need for skepticism when an enterprise’s exposure to benefits or losses of a variable interest entity is not aligned with its power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance.


Loan loss disclosures. The Board discussed proposed enhancements to disclosures about the allowance for credit losses associated with loans and finance leases (financing receivables). The Board agreed with the staff’s recommendations that are described in the Board meeting handout.

The Board will discuss proposed transition provisions and the effective date of the proposed changes at a future meeting.