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OUTCOMES FASB OCTOBER 17, 2007 BOARD MEETING |
| Source: | Financial Accounting Standards Board | | Country: | United States | | Date: | 14/11/2007 | | Contributor: | Andrew Priest | | Web: | http://www.fasb.org |
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The Financial Accounting Standards Board (FASB) has released a summary of its October 17, 2007 Board meeting.
The Board continued its discussions of a working definition of an asset“An asset is a present economic resource to which the entity has a present right or other privileged access”to replace the existing definition of an asset“Assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.”
The Board tentatively decided to:- Focus the definition of an asset on a present economic resource, rather than on future economic benefits.
- Remove the assessment of likelihood from the existing definition of an asset
- Focus the definition on the present rather than on past transactions or other events.
- Ask the staff to clarify the linkage between the entity and the economic resource, preferably without using the word control.
The IASB reached similar decisions at its meeting on October 16, 2007. The IASB and FASB will continue to discuss wording of the definition at their joint meeting on October 22-23, 2007.
Accounting for leases
The Board discussed a staff analysis of lease arrangements, which include lessee obligations to incur costs to return the leased item, return the leased item in a specified condition, and maintain the leased item.
The Board considered whether these obligations meet the definition of a liability and, if so, when the liability arises. The Board also considered how the debit arising upon recognition of the liability should be treated, how the liability should be measured, and whether these obligations give rise to assets for the lessor.
The Board discussed a staff analysis of lease payments with a variable factor based on price changes or an index, the lessee’s financial or operating performance from the leased item, and the lessee’s use of the leased item.
The Board considered whether these variable lease payments meet the definition of a liability and, if so, when the liability arises and how it should be measured.
The meeting was informational, and no decisions were reached.
Statement 133 hedging
The Board discussed a fair value hedge accounting approach that would eliminate many elements that exist under the current hedge accounting model in FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, including bifurcation-by-risk, the shortcut method, critical terms match, and the requirement to quantitatively assess effectiveness in order to qualify for hedge accounting. The discussion focused on fair value hedging relationships and the approach was discussed in the context of scope, requirements for hedge accounting, and measurement of the hedged item.
The Board decided to retain fair value hedge accounting for items currently within the scope of Statement 133 and to require a principles-based evaluation of effectiveness that would permit a qualitative assessment of effectiveness in many situations. The Board agreed to permit hedge accounting after initial recognition of the asset or liability and also to allow entities to dedesignate and redesignate a hedging relationship at any time. The Board agreed that the carrying value of the hedged item should be adjusted for changes in fair value during the hedge period.
The Board directed the staff to further research alternatives for accounting for the credit component of changes in fair value when an entity is hedging its own issued debt. Additionally, the Board directed the staff to further research a potential method for separately reporting the cumulative changes in fair value of the hedged item and its balance sheet carrying value.
Agenda decision: deferral of the effective date of Statement 157
The Board decided not to add a project to its agenda to defer the effective date of FASB Statement No. 157, Fair Value Measurements, in its entirety. However, the Board directed the staff to evaluate other potential deferral alternatives including a deferral for (1) all assets and liabilities except financial assets and liabilities and derivatives subject to the scope of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, (2) private entities, and/or (3) “small” entities. The Board will discuss those alternative deferral options at a future Board meeting.
Agenda decision: deferral of the effective date of SOP 07-1
The Board added a project to its agenda to indefinitely defer the effective date of AICPA Statement of Position 07-1, Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies. For entities that have not yet adopted the provisions of SOP 07-1, early adoption would not be permitted. The Board directed the staff to prepare a draft of a proposed FSP for vote by written ballot. The Board decided that the proposed FSP should have a 30-day comment period.
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