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Highlights from the FASB’s March 12 meeting

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Mar 13, 2014

At its March 12, 2014, meeting, the FASB made decisions related to classification and measurement, impairment, consolidation, transfers and servicing, and not-for-profit financial statements.


Financial instruments — Classification and measurement

The FASB continued redeliberating its proposed Accounting Standards Update, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, and tentatively decided to retain the current separate models for classifying and measuring investments in debt securities and loans. However, the Board directed the staff to evaluate whether the current definition of “security” should be amended.

For more information, see the related Deloitte Accounting Journal entry and the meeting minutes on the FASB's Web site.


Financial instruments — Impairment 

The FASB redeliberated its proposed Accounting Standards Update, Financial Instruments—Credit Losses (Subtopic 825-15), and discussed whether the current expected credit losses (CECL) model should apply to all financial assets.

The Board tentatively decided that (1) the CECL model should apply to financial assets measured at amortized cost and (2) an entity should not recognize expected credit losses for financial assets measured at fair value with qualifying changes in FV-OCI1 if the fair value equals or exceeds the amortized cost basis. When fair value is less than the amortized cost basis, “an entity should recognize expected credit losses in net income determined under the CECL model but limited to the difference between the financial asset’s fair value and its amortized cost basis.”

For more information, see the meeting minutes on the FASB's Web site.


Consolidation — Principal versus agent analysis

The FASB discussed how interests held in an entity by the related parties of a decision maker should affect whether the decision maker must consolidate the entity.

The Board tentatively reached the following decisions:

  • A decision maker should consider its indirect interests held through its related parties on a proportionate basis when performing a consolidation analysis under the VIE requirements. However, depending on “the nature and substance of the related party relationship,” a decision maker may conclude that it should consider its related party’s interests as though they are held directly by the decision maker (in a manner similar to the existing guidance under ASC 810) or that it should exclude the related party’s interests from the analysis.
  • If a decision maker is determined to be an agent, neither the decision maker nor any member of its related-party group would be required to consolidate a VIE under the related-party tiebreaker test. However, “if the related parties are being used to circumvent the consolidation guidance, the related party tie breaker test must be performed,” and the decision maker or another member of the related-party group would be required to consolidate the VIE.
  • The Board will not provide explicit guidance on how a decision maker’s related-party interests should be considered for limited partnerships or similar entities that are evaluated for consolidation under the voting interest entity requirements (i.e., the FASB voted to “stay silent” on this issue).

For more information, see the related Deloitte Accounting Journal entry and the meeting minutes on the FASB's Web site.


Transfers and servicing — Repurchase agreements and similar transactions

The FASB discussed feedback from an external review draft of Accounting Standards Update, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Agreements, Repurchase Financings, and Disclosures.

The Board tentatively decided to modify the information entities would disclose about repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions accounted for as secured borrowings. Entities would not be required to include:

  1. “[T]he component of the disclosure related to reporting the fair value of the collateral pledged as of the reporting date
  2. [T]he component of the disclosure related to reporting the remaining contractual maturity of the collateral pledged
  3. [T]he requirement to integrate the disaggregation by class of collateral pledged with the requirement to disclose the tenor of the financing agreement.”

In addition, the Board tentatively decided to extend the effective date of this disclosure only to periods beginning on or after March 15, 2015.

For more information, see the related Deloitte Accounting Journal entry and the meeting minutes on the FASB's Web site.


Financial statements of not-for-profit entities

The FASB discussed alternative ways for not-for-profit (NFP) entities to improve the reporting of their financial information about liquidity, including the following:

  1. “Providing a classified statement of financial position
  2. Distinguishing assets limited as to use from other assets, either on the face of the statement of financial position or in notes
  3. Disclosing information in notes to financial statements about the nature, timing, amount, and effects on liquidity of external restrictions imposed by donors, contracts, and other sources as well as limits imposed by an entity’s board of directors.
  4. Disclosing specific information in notes to financial statements about an entity’s liquidity, which includes information such as (a) assets that can be liquidated to meet near-term demands (a time horizon determined by the NFP), (b) policies on the use of liquidity reserves in managing liquidity and liquidity risks, (c) past liquidity issues and whether they remain risks, and (d) existing conditions and circumstances that are known and are reasonably possible to affect an entity’s cash flow trends and liquidity.”

The Board did not make any decisions about these alternatives and directed its staff to conduct additional research to evaluate how the alternatives would affect an NFP’s financial statements and notes.

For more information, see the meeting minutes on the FASB's Web site.


1 Fair value through other comprehensive income.

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