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.
November 7, 2012 FASB Board MeetingGoing concern. The Board decided to adopt a new financial reporting model for management’s assessment of going concern, and related disclosures. The following represents the Board’s decisions pertaining to the new financial reporting model.
At each reporting period, management would assess an entity’s potential inability to continue as a going concern and the need for related disclosures. In doing so, management would consider the likelihood of an entity’s potential inability to meet its obligations as they become due for a reasonable period of time.
Management would start providing disclosures in its financial statements about an entity’s financial difficulties when existing events or conditions indicate it is near more likely than not that the entity may be unable to meet its obligations in the ordinary course of business, within a reasonable period of time from the balance sheet date. In assessing the need for disclosures, the mitigating effect of management’s plans would be considered unless such plans involve actions that are outside the ordinary course of business.
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. In evaluating the need for this assertion, management would consider the effect of all management plans.
In performing the assessment, management would consider existing events or conditions that may result in an entity’s inability to meet its obligations within a reasonable period of time. Reasonable period of time would represent 12 months from the financial statement (period end) date. In addition, the assessment would consider the effect of existing events or conditions that are probable of resulting in an entity’s inability to meet its obligations beyond the initial 12 months. Reasonable period of time would be limited to a practical amount of time in which the future impact of existing events or conditions can be identified, not to exceed a period of 24 months from the period end date.
The Board plans to discuss the following issues at a later date: (1) applicability to nonpublic entities, (2) further analysis of the nature of disclosures and its interaction with the MD&A for public companies, (3) guidance on how management’s plans should be distinguished and considered, and (4) effective date and transition.
Accounting for financial instruments: liquidity and interest rate disclosures. The Board discussed the comments received on Proposed Accounting Standards Update, Financial Instruments (Topic 825): Disclosures about Liquidity Risk and Interest Rate Risk. No decisions were made.
Transfers and servicing: repurchase agreements and similar transactions. The Board discussed the transition methods for the proposed Accounting Standards Update and decided on a cumulative-effect approach for repo-to-maturity transactions and repurchase financings involving a repo-to-maturity. Under this approach, an entity would recognize a cumulative-effect adjustment to beginning retained earnings as of the date of adoption. For all other repurchase agreements and similar transactions, the revised guidance would be applied prospectively to repurchase agreements and similar transactions entered into or modified after the effective date.
The Board also decided to require entities to disclose, in the period of adoption, a description of the accounting change and the effect on the balance sheet. The Board decided not to permit early adoption. The comment period for the proposed Update would end on March 29, 2013.
Additionally, the Board discussed an analysis of the effect on financial reporting complexity of the decisions reached in this project and decided that the proposed Update does not create an unacceptable level of financial reporting complexity for the accounting for repurchase agreements and similar transactions.
The Board directed the staff to draft a proposed Update for vote by written ballot.