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.
September 19, 2011 — FASB/IASB Joint Videoconference Board
The IASB and the FASB discussed a scope issue, the application of financial
asset guidance to the right to receive lease payments, other subsequent
measurement issues for lessors, and the accounting for residual value guarantees
The Boards tentatively
decided not to provide a scope exclusion from the leases standard for assets
often treated as inventory, such as non-depreciating spare parts, operating
materials, and supplies, and that are associated with the leasing of another
Lessor—Application of Financial Asset Guidance to
the Right to Receive Lease Payments
The Boards tentatively decided
instructed the staff to analyze further whether there should be a requirement to
measure the right to receive lease payments at fair value if that right were
held for sale.
- A lessor should subsequently measure the right to receive lease payments
using the effective interest method.
- A lessor should refer to existing financial instruments guidance (IAS 39,
Financial Instruments: Recognition and Measurement, and FASB
Accounting Standards Codification® Topic 310, Receivables) to assess the
impairment of that right to receive lease payments.
- The leases standard should not contain an option for fair value
measurement of the right to receive lease payments.
Lessor—Other Subsequent Measurement
The Boards tentatively decided that a lessor should refer to
IAS 36, Impairment of Assets, or Topic 360, Property, Plant, and
Equipment, as appropriate, to assess the impairment of the residual
The Boards tentatively decided that a lessor should recognize
changes in the right to receive lease payments due to reassessments of variable
lease payments that depend on an index or a rate immediately in profit or loss.
The IASB tentatively decided that revaluation of the residual asset
should be prohibited.
Lessor—Residual Value Guarantees
The Boards tentatively decided that:
- The leases standard would provide guidance on accounting for all residual
value guarantees, regardless of whether they are provided by a lessee, a
related party, or a third party.
- A lessor would not recognize amounts expected to be received under a
residual value guarantee until the end of the lease. However, the lessor would
consider those guarantees when determining whether the residual asset is
contracts. The IASB and the FASB continued their discussions
on insurance contracts on the topic of disclosures. In addition, the IASB
continued its discussions on the risk adjustment and listened to a report on the
FASB's recent decisions on the single margin
The Boards tentatively decided to
retain the disclosures proposed in paragraphs 90–97 of the IASB's Exposure
Draft, Insurance Contracts, with changes as follows:
In addition, the IASB tentatively
decided to delete the proposed requirement in paragraph 90(d) to disclose a
measurement uncertainty analysis and to align (in due course) that disclosure
with the disclosure for fair value measurements in IFRS 13, Fair Value
Measurement, as appropriate. The FASB decided to retain this disclosure.
- To delete the requirement that an insurer shall not aggregate information
relating to different reportable segments (paragraph 83 of the Exposure Draft)
to avoid a conflict with the principle for the aggregation level of
disclosures. The level of aggregation could thus vary for different types of
qualitative and quantitative disclosures. However, the standard would add to
the examples listed in paragraph 84 of the Exposure Draft by stating that one
appropriate aggregation level might be reportable segments.
- To require the insurer to disclose separately the effect of each change in
inputs and methods, together with an explanation of the reason for the change,
including the types of contract affected.
- For contracts in which the cash flows do not depend on the performance of
specified assets (that is, non-participating contracts), to require disclosure
of the yield curve (or range of yield curves) used.
- To require the maturity analysis of net cash outflows resulting from
recognized insurance liabilities proposed in paragraph 95(a) of the Exposure
Draft to be based on expected maturities and to remove the option to base
maturity analysis on remaining contractual maturities. Furthermore, within the
context of time bands, the Boards decided to require the insurer to disclose,
at a minimum, the expected maturities on an annual basis for the first five
years and in aggregate for maturities beyond five years. In place of this
disclosure, the FASB would rely on its tentative decisions relating to risk
disclosures for financial institutions, as reached on its project on financial
instruments at the FASB Board meeting on September 7, 2011. Those disclosures
would apply to insurance entities.
Risk Adjustment: Objective and Confidence Level
The IASB tentatively decided that:
addition the IASB tentatively decided to retain the confidence level equivalent
disclosure that had been proposed in paragraph 90(b)(i) of the Exposure Draft.
- The objective of risk adjustment should be the “compensation the insurer
requires for bearing the uncertainty inherent in the cash flows that arise as
the insurer fulfills the insurance contract” and that
- The application guidance should clarify that:
- The risk adjustment measures the compensation that the insurer would
require to make it indifferent between (i) fulfilling an insurance contract
liability that would have a range of possible outcomes and (ii) fulfilling a
fixed liability that has the same expected present value of cash flows as
the insurance contract. For example, the risk adjustment would measure the
compensation that the insurer would require to make it indifferent between
(i) fulfilling a liability that has a 50 percent probability of being 90 and
a 50 percent probability of being 110 and (ii) fulfilling a liability of
- In estimating the risk adjustment, the insurer should consider both
favorable and unfavorable outcomes in a way that reflects its degree of risk
aversion. The Boards noted that a risk-averse insurer would place more
weight on unfavorable outcomes than on favorable ones.
Risk Adjustment: Techniques and Inputs
The IASB also tentatively decided to retain as
examples the three techniques proposed in the Exposure Draft (confidence levels,
conditional tail expectation, and cost of capital), together with the related
- Not to limit the range of available techniques and the related inputs to
estimate the risk adjustment and instead;
- To retain in the application guidance the list of characteristics, as
proposed in paragraph of B72 of the Exposure Draft, that a risk adjustment
technique should exhibit if that technique is to meet the objective of the
Single Margin Approach
At its May
2011 meeting, the FASB tentatively decided that the insurance contract
measurement model should use a single margin rather than an explicit risk
adjustment and residual margin. The FASB staff reported on the tentative
decisions reached on the single margin at the September 7 FASB Board
Both Boards will continue their
discussion on insurance contracts in mid-October.