Plan for the project given constituent feedback

The Boards discussed a plan forward for the impairment project based on the inconsistent feedback received from comment letter respondents and outreach activities to the Board's proposals as contained in the Supplementary Document (the "Supplement").

The staffs proposed four alternatives for the Boards to consider:

1. Finalise the impairment model based on the time-proportionate approach developed by the IASB
2. Finalise the impairment model based on the foreseeable future approach developed by the FASB
3. Finalise the impairment model based on the proposals in the Supplement, or
4. Utilise the recently formed impairment subgroup to develop a variation of the impairment model based on the feedback received.

Members from both Boards were in general agreement that they needed to make some final decision soon and that it was important that it be a joint decision. However, one IASB member suggested setting a timetable deadline and if resolution was not achieved by that date then the respective Boards should move on individually. One IASB member noted that they were approaching the fourth anniversary of the financial crisis and were yet to resolve one of the major accounting issues associated with the crisis. Another IASB member asked what timeline the staff had in mind for the alternative of developing a new variation of the impairment model; the staff responded that ideally by the end of June they would have agreement on the big picture.

One of the FASB members suggested that a path forward may be to look at the weaknesses identified in the incurred loss model and addressing those, rather than proceeding with an entirely new model. Specifically he mentioned reconsidering the data set of information used in estimating losses and lowering the threshold for recognising an incurred loss. Other members of both Boards had reservations of such an approach and felt that moving to an expected loss model was critical in order to improve financial reporting. Another FASB member suggested that perhaps the Boards could focus first on disclosures and find agreement there by providing users the information they really need to perform their financial statement analysis and then focus on the amounts recognised in the balance sheet and income statement.

The incoming IASB Chair stated that the financial institutions were also critical of the work of the Basel Committee when developing the Basel III regulatory requirements. So just because the financial institutions were critical of the proposals doesn't mean that that proposals in the Supplement may not be the right answer. He suggested that modifying the incurred loss model would not be strong enough. He also referenced the fact that many European financial institutions have sovereign debt securities in their portfolios trading at significant discounts but for which no impairments have yet been recognised. He closed by saying that the Boards had to come to some resolution.

The FASB Chair mentioned that based on the feedback received, there seemed to be agreement on recognition for the bad book and for removing impairment recognition triggers. The concerns focus more on the transfers to the bad book and then the recognition of expected losses in the good book. She suggested the Boards focus on an approach to the good book that is both operational and explainable to investors, as the potential for switching between the time proportionate and the foreseeable future allowance amounts from period to period was concerning for preparers to explain the amounts to investors. An IASB member followed that it was important the Boards develop a model where one approach does not dominate the other as a common comment received was that the foreseeable future period allowance would often times dominate the time proportionate allowance.

The current IASB Chair closed the meeting with the Board agreeing to the alternative in which the impairment subgroup would work expeditiously to develop a variation of the impairment model based on the feedback received. He suggested one approach the group consider of using a building blocks approach in which the allowance would be comprised of:

1. a bad book allowance
2. a time proportionate allowance, and
3. a minimum floor (i.e., rather than a ‘higher of' test, both the time proportionate and floor would be component parts of the allowance).

The Boards generally agreed that such an approach was worth consideration.