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.
January 18, 2011 FASB/IASB Joint Board MeetingInsurance
contracts. The IASB and the FASB discussed the feedback received in
the comment letters on the IASB's Exposure Draft, Insurance Contracts,
and the FASB's Discussion Paper, Preliminary Views on Insurance
Contracts. No decisions were made.
for financial instruments: impairment. The Boards tentatively
agreed to a 60-day comment period for the upcoming joint supplementary
impairment document to the FASB’s May 2010 and the IASB’s November 2009 Exposure
January 19, 2011 FASB/IASB Joint Board
recognition. [See the
summary for the January 20, 2011 FASB/IASB Joint Board
Comment Letter Summary
The Boards considered a summary
The Boards also discussed the plan for redeliberating the
issues raised by respondents to the Exposure Draft.
- The feedback received in response to the Exposure Draft, Leases,
which was published for public comment in August 2010
- Outreach activities undertaken after the publication of the Exposure Draft
to explain the proposals in the Exposure Draft and to obtain feedback on the
The Boards plan to
begin redeliberations by considering two of the fundamental issues raised by
respondents, which are the definition of a lease and the next steps to be taken
relating to lessor accounting.
Definition of a Lease
Boards discussed the definition of a lease and how to distinguish between a
lease contract and a service contract. The Boards also discussed whether, under
a right-of-use model, all lease contracts should have the same subsequent
This session was for education only, and thus the
Boards did not make any technical decisions.
contracts. The FASB and the IASB had invited guest speakers to an
education session on potential discount rates for nonparticipating insurance
contracts. The IASB's Exposure Draft, Insurance Contracts, and the
FASB's Discussion Paper, Preliminary Views on Insurance Contracts, had
both proposed a bottom-up determination of the discount rate that starts with a
risk-free interest rate and adds an adjustment for illiquidity. The guest
speakers provided presentations on, as an alternative, various top-down
approaches that start with the return on a specified portfolio of assets and
then deduct components that do not reflect the characteristics of the insurance
liability being measured. The approaches discussed were:
decisions were made.
- Economic default adjusted discount rate (EDAR); speaker Rob Esson,
National Association of Insurance Commissioners (NAIC) and the International
Association of Insurance Supervisors (IAIS)
- Reference asset portfolio-based discount rate; speakers Francesco Nagari
and Andrew Smith, Deloitte LLP
- Asset-linked discount rate; speaker Nick Bauer, Eckler Ltd.
January 20, 2011 FASB/IASB Joint Board
recognition. The IASB and the FASB began their redeliberations of
the Exposure Draft, Revenue from Contracts with Customers, by
discussing the following topics:
- Segmenting a contract
- Identifying separate performance obligations
- Determining the transfer of goods and services.
The Boards decided to eliminate the proposed requirement in
the Exposure Draft to account for one contract as two or more contracts if the
price of some goods or services in the contract is independent of the price of
other goods or services in the contract. Consequently, an entity would separate
a contract only if the entity identifies separate performance obligations in the
contract. At a future meeting, the Boards will discuss further the implications
of this decision on allocating the transaction price.
Separate Performance Obligations
The Boards decided that the revenue
standard should clarify that the objective for identifying separate performance
obligations is to depict the transfer of goods or services and the profit margin
that is attributable to those goods or services.
The Boards decided to
retain the principle of “distinct goods or services” as the basis for
identifying separate performance obligations. The Boards asked the staff to
analyze further the following attributes of a distinct good or service and
consider how an entity would apply them in various scenarios:
The Boards also
decided that it would not be necessary for the revenue standard to include
additional requirements on accounting for perfunctory, incidental, or other
- Distinct function
- Separable risks
- Different pattern of transfer to the customer.
Determining the Transfer of Goods and
The Boards affirmed the core principle in the Exposure
Draft that an entity should recognize revenue to depict the transfer of goods
and services to a customer.
determining the transfer of a good, the Boards decided that an entity should
recognize revenue when the customer obtains control of the good. The Boards also
decided that the revenue standard should:
- Carry forward from the Exposure Draft most of the proposed guidance on
- Describe rather than define control
- Add “risks and rewards of ownership” as an indicator of control
- Eliminate “the design or function of the good or service is
customer-specific” as an indicator of control.
For determining the transfer of a service, the Boards
decided that an entity should recognize revenue for the entity’s performance of
a contractually agreed task or tasks if:
The Boards decided that an entity
would recognize revenue for a service only if the entity can reasonably measure
its progress toward successful completion of the service. The Boards asked the
staff to analyze further which method an entity should use to measure its
progress toward completion of a service (for example, an output method, an input
method, or a method based on the passage of time).
- The customer controls the work-in-process, or
- Another entity would not need to reperform the task(s) if that other
entity were required to fulfill the remaining obligation to the customer,
- The entity has a right to payment for the performed task(s) and the
entity’s performance to date does not have an alternative use to the entity
(that is, the performance to date has not created an asset that could be
transferred to another customer).
The Boards decided that if an entity promises to
transfer both goods and services, the entity should first determine whether the
goods and services are distinct (in accordance with the guidance on identifying
separate performance obligations).
- If the goods and services are distinct, the entity would account for them
as separate performance obligations.
- If the goods and services are not distinct, the entity would account for
the bundle of non-distinct goods and services as a service.
At their meetings in February, the Boards will discuss the
- Costs of obtaining a contract
- Combining contracts
- Contract modifications
- Product warranties.
The IASB and the FASB discussed the
next steps for redeliberating the lessor accounting model proposed in the
Exposure Draft, Leases.
The Boards noted the benefit of
considering lease issues from the perspective of both a lessee and a lessor and,
therefore, decided that they should continue to address lessee and lessor
accounting issues together.
The Boards also noted that some respondents
questioned why the Exposure Draft proposes consistent application of a
right-of-use model by all lessees, but proposes that application by lessors
depends on an assessment of whether the lessor retains exposure to significant
risks and benefits associated with the underlying asset. The Boards noted that
many respondents, including users, think some lessees and lessors enter into
lease contracts to finance the use of an underlying asset, whereas other lessees
and lessors enter into lease contracts for other reasons, such as the
operational flexibility provided by the contract. The Boards directed the staff
to explore whether there should be two approaches to apply the right-of-use
model by both lessees and lessors, and therefore two different patterns of
profit or loss recognition, and how to differentiate between the two
This session was for education only, and thus the Boards did
not make any technical decisions.