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.
January 31, 2013 FASB Board MeetingGoing concern. The Board made the following decisions related to an entity’s going concern assessment and disclosures:
The Board decided that management should provide disclosures when existing events or conditions indicate that it is more likely than not that the entity may be unable to meet its obligations within a reasonable period of time from the financial statement date. The assessment would not consider the mitigating effect of management plans that are outside the ordinary course of business. Because the assessment is inherently judgmental, the Board intends more likely than not to be viewed as an approximate benchmark for starting disclosures and not as a bright-line threshold. The proposed standard will include example indicators to help management in assessing the need for disclosures.
Definition of Outside the Ordinary Course of Business
The Board decided to define outside the ordinary course of business as follows:
“Management’s plans that would require actions of a nature, magnitude, or frequency inconsistent with actions customary in carrying out an entity’s ongoing business activities shall be considered outside the ordinary course of business. Management’s plans specifically intended to mitigate concerns about an entity’s ability to meet its obligations within a reasonable period of time shall be considered outside the ordinary course of business. In addition, management’s plans that are not definitive, or are in early stages of implementation, shall be considered outside the ordinary course of business when assessing the need for disclosures.”
The proposed standard will include examples of management plans that are outside the ordinary course of business.
Consistent with the disclosure considerations outlined in present auditing standards, the proposed standard would require an entity to disclose sufficient information to enable users to understand the principal events giving rise to an entity’s potential inability to meet its obligations, their possible effects, and management’s plans.
Applicability to Nonpublic Entities
In previous deliberations, the Board had decided that management would assert in the financial statements that there is substantial doubt about an entity’s ability to continue as a going concern when the likelihood of the entity’s inability to meet its obligations within a reasonable period of time reaches probable. The Board decided that nonpublic entities would not be required to make a substantial doubt assertion. Nonpublic entities would still be required to apply all other provisions and disclosures of the new model.
Transition and Other Matters
The Board tentatively decided that an entity would apply the proposed guidance prospectively. The Board directed the staff to draft a proposed Accounting Standards Update for vote by written ballot. The proposed Update will have a 90-day comment period.
Nonpublic entities: clarification of a fair value disclosure requirement. The Board affirmed the proposed amendments in the January 7, 2013 proposed Accounting Standards Update, Financial Instruments (Topic 825): Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities. The amendments will be effective upon issuance. The Board directed the staff to draft a final Update for vote by written ballot.
FASB ratification of EITF consensuses and tentative conclusions. The Board ratified the following consensuses reached at the January 17, 2013 EITF meeting.
Issue 11-A, “Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity”
When a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity, the parent should apply the guidance in Subtopic 830-30 to release any related cumulative translation adjustment into net income. Accordingly, the cumulative translation adjustment should be released into earnings only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided.
For an equity method investment that is a foreign entity, the partial sale guidance in Section 830-30-40 still applies. As such, a pro rata portion of the cumulative translation adjustment should be released into net income upon a partial sale of such an equity method investment. However, that treatment does not apply to an equity method investment that is not a foreign entity. In those instances, the cumulative translation adjustment is released into net income only if the partial sale represents a complete or substantially complete liquidation of the foreign entity that contains the equity method investment.
The sale of an investment in a foreign entity includes both (1) events that result in the loss of a controlling financial interest in a foreign entity (that is, irrespective of any retained investment) and (2) events that result in an acquirer obtaining control of an acquiree in which it held an equity interest immediately before the acquisition date (sometimes also referred to as a step acquisition). Accordingly, the cumulative translation adjustment should be released into net income upon the occurrence of those events.
No additional recurring disclosures are required by this Issue.
The amendments resulting from this Issue are effective prospectively from the beginning of the fiscal year of adoption for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. For nonpublic entities, the amendments resulting from this Issue are effective prospectively from the beginning of the first annual period beginning after December 15, 2014, and interim and annual periods thereafter. Early adoption from the beginning of the fiscal year of adoption is permitted.
Issue 12-D, “Accounting for Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date”
An entity should measure obligations resulting from joint and several liability arrangements for which the total amount under the arrangement is fixed at the reporting date, as the sum of the following:
- The greater of the amount the reporting entity agreed to pay with its co-obligors and the amount of proceeds received by the reporting entity in cash from a debt arrangement
- Any additional amount the reporting entity expects to pay.
- The nature of the arrangement, including how the liability arose, the relationship with other co-obligors, and the terms and conditions of the arrangement
- The total outstanding amount under the arrangement, which should not be reduced by the effect of any amounts that may be recoverable from other entities
- The carrying amount, if any, for the entity's liability and the carrying amount of a receivable recognized, if any
- The nature of any recourse provisions that would enable recovery from other entities of the amounts paid, including any limitations on the amounts that might be recovered
- In the period the liability is initially recognized and measured or in a period the measurement changes significantly, the corresponding entry and where it was recorded in the financial statements.
The amendments resulting from this Issue are effective for fiscal years (and interim periods within those years) beginning after December 15, 2013. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2014, and interim and annual periods thereafter.
The Board also approved the following consensuses-for-exposure reached at the January 17, 2013 EITF meeting and decided to expose them for public comment for a period of 60 days.
Issue 13-A, “Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes”
The Fed Funds Effective Swap Rate (OIS) would be included as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815, in addition to UST and LIBOR.
The consensus-for-exposure does not require any additional recurring disclosures.
The amendments resulting from this consensus-for-exposure would be applied on a prospective basis for qualifying new or redesignated hedging relationships entered into on or after the date of adoption.
Issue 13-C, “Presentation of Unrecognized Tax Benefit When a Net Operating Loss Carryforward or Tax Credit Carryforward Exists”
An unrecognized tax benefit, or a portion of an unrecognized tax benefit, would be presented in the statement of financial position as a reduction to a deferred tax asset for a net operating loss carryforward or a tax credit carryforward, if the unrecognized tax benefit would, or is available to, reduce the net operating loss carryforward or tax credit carryfoward under the tax law of the applicable jurisdiction. If the unrecognized tax benefit would not, or is not available to, reduce the net operating loss carryforward or tax credit carryforward, then the unrecognized tax benefit would be presented in the statement of financial position as a liability.
The consensus-for-exposure does not require any additional recurring disclosures.
The amendments resulting from this consensus-for-exposure would be applied retrospectively to all periods presented with earlier application permitted.