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.

May 17, 2010 FASB/IASB Joint Board Meeting

Revenue recognition. The Boards considered:

1. Repurchase agreements
2. Sales of assets that are not an output of an entity’s ordinary activities.

Repurchase Agreements

The Boards tentatively decided that the forthcoming Exposure Draft will explain how an entity would determine whether a buyer obtains control of an asset subject to a repurchase agreement.

1. If a buyer has the unconditional right to require the entity to repurchase the asset (a put option), the buyer obtains control of the asset and the entity should account for the agreement similarly to the sale of a product with a right of return.
2. If an entity has an unconditional obligation or unconditional right to repurchase the asset (a forward or a call option), the buyer does not obtain control of the asset. The entity should account for the repurchase agreement as:
   1. A lease in accordance with FASB Accounting Standards Codification™ Topic 840, Leases, or IAS 17, Leases, if the entity repurchases the asset for less than the original sales price of the asset (that is, the buyer pays a net amount of consideration to the entity).
   2. A financing arrangement if the entity repurchases the asset for more than the original sales price of the asset (that is, the entity pays a net amount of consideration to the buyer).
3. If the sale and repurchase agreement is a financing arrangement, the entity should continue to recognize the asset and should recognize a financial liability for any consideration received from the buyer. The entity should recognize the difference between the amount of consideration received from the buyer and the amount of consideration paid to the buyer as interest and, if applicable, holding costs (for example, insurance).

1. Intangible assets within the scope of Topic 350, Intangibles—Goodwill and Other, or IAS 38, Intangible Assets
2. Property, plant, and equipment within the scope of Topic 360, Property, Plant, and Equipment, or IAS 16, Property, Plant and Equipment, or IAS 40, Investment Property.

Consequently, the entity would:

1. Derecognize the asset when the buyer obtains control of the asset.
2. Recognize at that date a gain or loss equal to the difference between the transaction price and the carrying amount of the asset. The transaction price would be limited to amounts that can be reasonably estimated at the date of transfer.

Next Steps

The Boards plan to publish the Exposure Draft in June.
 

1. Lessor accounting for the performance obligation
2. Derecognition approach to lessor accounting.

1. Accounting for residual assets
2. Accounting for options.

1. By a narrow margin, the IASB tentatively selected an approach that includes a risk adjustment plus a residual margin.
2. By a narrow margin, the FASB tentatively selected an approach that includes a single composite margin.

1. That the objective is to reflect the maximum amount that an insurer would rationally pay to be relieved of the risk, taking into consideration that the amount of benefits and claim costs actually paid may exceed the amount expected to be paid.
2. That the guidance accompanying this objective should clarify that a risk adjustment would capture the level of uncertainty inherent in the cash flows from the insurance liability from the perspective of the insurer, rather than from the perspective of a market participant.
3. To limit the range of available techniques to measure the risk adjustment. Staff will bring back at a future meeting a discussion on which techniques would be available for measuring the risk adjustment, including a further analysis on whether a cost-of-capital approach would meet the objective of the risk adjustment.

1. The insurer's exposure from the provision of insurance coverage
2. The insurer's exposure from uncertainties related to future cash flows.

1. That an entity should measure any risk adjustment at a portfolio level of aggregation
2. To retain the definition of portfolio of contracts in the existing IFRS 4 as contracts that are subject to broadly similar risks and managed together as a single portfolio
3. That residual or composite margins should be determined at a cohort level of aggregation, by grouping insurance contracts by portfolio and, within the same portfolio, by date of inception of the contract and by length (or life) of the contract.

1. Accounting for options
2. Accounting for contingent rentals and residual value guarantees
3. Accounting for subleases
4. Presentation
5. Disclosures.

1. Lease receivables separately from other receivables in the statement of financial position
2. Residual assets separately with property, plant, and equipment in the statement of financial position with disclosures by class of assets
3. Revenue and cost of sales based on the lessor’s business model, that is, some lessors would present gross and other lessors would present net in the statement of comprehensive income.

1. Additional disclosures about the residual asset
2. Additional disclosures about the service obligations.

1. The IASB decided tentatively that embedded derivatives should be unbundled when the IASB's existing standards on financial instruments would require this.
2. The FASB decided tentatively that embedded derivatives should be unbundled using the unbundling principle being developed for insurance contracts.

1. Exclude fixed-fee service contracts
2. Not exclude financial guarantee contracts, defined as contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument.

1. Captures financial guarantee contracts, as defined above, but
2. Does not capture contracts that pay out regardless of whether the counterparty holds the underlying debt instrument, and
3. Revised 05/27/10—Does not capture contracts that pay out on a change in credit rating or change in credit index, rather than on the failure of a specified debtor to make payments when due. Thus, financial guarantee contracts, as defined above, would be within the scope of the standard on insurance contracts.

1. A decision-maker should assess whether it controls regulated funds that it manages. It should make this assessment by using the agency guidance that applies to all decision-makers that have been delegated decision-making authority. Consequently, there is no need to include specific guidance for regulated funds.
2. When preparing its consolidated financial statements, the parent of an investment company (if it is not an investment company itself) shall be prohibited from retaining the fair value accounting that is applied by an investment company subsidiary to that investment company's controlled investees.