The Chairman of the FCAG, Harvey J. Goldschmid, kicked off the meeting by informing the panelists and observers that FCAG is looking for feedback from the community on certain questions/topics to discuss during its next meeting in London, scheduled for 20 April 2009. FCAG expects to post these questions/topics on its website www.fasb.org/fcag/index.shtml on Monday. The members of the FCAG discussed various topics, including issues that could not be discussed due to time constraint, during its previous meeting in February 2009. Noted below are highlights of the issues discussed.

Dynamic Provisioning

Chairman Goldschmid noted that this is probably the most important issue the group will discuss today. The discussion on this topic was centered on the discussion paper prepared by the FCAG. Highlights of this discussion paper were attached as Appendix A to the meeting handouts, which can be obtained from the FCAG's website www.fasb.org/fcag/fcag_mtg_handouts.shtml.

Certain members noted that the concept of dynamic provisioning has similar connotations as the incurred loss model, and the concept is based on actual losses statistically estimated over time. In addition, certain members also pointed out that the concept of dynamic provisioning is a regulatory rather than an accounting issue, and changing the accounting to meet regulatory requirements could have an adverse impact, leading to more cyclicality.

Members also pointed out that the current incurred loss model is broken since it does not recognise losses at the 'right time' and whether a new model, such as the current value model, would be a better depiction of economic reality.

Many panelists agreed with the general concept of dynamic provisioning. Mr. Leisenring stated that any discussion of dynamic provisioning should start with defining the term. Mr. Herz indicated that standard-setter concerns include insuring that there is objective methodology in determining reserves under dynamic provisioning. The group agreed that the FASB, IASB, and the Basel Committee of Banking Supervisors will create a working group to study the various issues/questions raised on dynamic provisioning, including looking at the appropriate provisioning method (that is, incurred loss, expected loss, dynamic provisioning, or fair value). In addition, it was also noted that this new working group would provide recommendations on the appropriate model by the end of this year.

Improvement and Simplification of Accounting and Reporting of Financial Instruments

Mr. Herz provided an update on Financial Instruments: Improvements to Recognition and Measurement, a joint project of the IASB and FASB. Mr. Herz noted that the Boards were looking for input from this group to help determine the objective of this joint project. Mr. Herz and fellow Board member, Ms. Seidman also pointed out that the Boards don't have the luxury of three to five years, which is a typical timeframe for major projects.

Members generally agreed with Mr. Herz's view regarding the timing of the proposed project and noted that the key to this joint project is to converge and simplify the accounting models for financial instruments.

The group discussed that moving to a full fair value model would pose significant challenges, and consistent with recommendations of the SEC MTM Report (released on 30 December 2008 in response to a congressionally mandated study), any move to a full fair value model should not be done without addressing exiting practice issues. Members discussed the benefits and potential downfall of having two models (for example, fair value and expected loss). The group generally agreed that given the nature and complex nature of financial instruments, achieving simplification would not be without its challenges. Therefore, the group agreed that consistency and convergence should be the focus. Further, the panelists agreed that this topic/issue be added to the list of items the new working group (being formed by the IASB, FASB and Basel Committee) would address.

Recognition of Gains/Losses Related to Entity's Own Indebtedness in Fair Value Measurement of Liabilities

The panel discussed the pros and cons of recording gains (or losses) in fair value measurements of liabilities due to a change in entities own indebtedness. The general consensus of the group was that gains (or losses) may be recognised in the fair value measurement of liabilities, if (a) the change in indebtedness was for a specific issuer, (b) such gains (or losses) were realisable, and (c) appropriately disclosed. The panelist discussed that for gains (or losses) to be realizable, the standard setters would have to establish certain criteria that should be met (for example, an entity has adequate cash to buy back debt and the counterparty is willing to sell it back, etc.).

Additional Guidance on Fair Value Measurements

The co-chairs of the FCAG highlighted the additional short-term projects undertaken by the FASB to address the application and disclosure guidance of FASB Statement No. 157. These projects include (a) application guidance on determining when a market for an asset or a liability is active or inactive; determining when a transaction is distressed; and applying fair value to interests in alternative investments, such as hedge funds and private equity funds, and (b) improving disclosures about fair value measurements, which will consider requiring additional disclosures on such matters as sensitivities of measurements to key inputs and transfers of items between the fair value measurement levels.

The panelists also discussed the need for regulatory action in building sound markets and noted that some of the problems we are facing today are due to opaque markets for unregulated financial instruments.

Off-Balance Sheet Items

The members discussed the FASB and IASB consolidation and derecognition project. The panelists stated that the complex structures created in the market place which were accounted for off-balance sheet were the key cause of the financial crisis. They encouraged the Boards to reach a common ground, which may include enhanced disclosures. The panel decided to discuss this topic in further detail during the April 20 meeting.

Governance and Due Process

The panelists agreed that the independence of the standard setters is vital to ensuring an unbiased and transparent standard setting process. The members agreed that even during emergency standard setting, consultation with constituents should be essential. However, they applauded the efforts taken by the FAF and IASCF and the establishment of the Monitoring Board.

This summary is based on notes taken by observers at the FCAG meeting and should not be regarded as an official or final summary.