Tentative Board Decisions

Tentative Board decisions are provided for those interested in following the Board’s deliberations. All of the reported decisions are tentative and may be changed at future Board meetings.

Wednesday, August 29, 2018 FASB Board Meeting

Inclusion of the overnight index swap rate based on the secure overnight financing rate as a benchmark interest rate for hedge accounting purposes.  The Board discussed comments received on the proposed Accounting Standards Update, Derivatives and Hedging (Topic 815): Inclusion of the Overnight Index Swap (OIS) Rate Based on the Secured Overnight Financing Rate (SOFR) as a Benchmark Interest Rate for Hedge Accounting Purposes and decided to:
  1. Confirm its decision to add the OIS rate based on SOFR as a U.S. benchmark interest rate. The Board also indicated it plans to continue to monitor the development of the SOFR term rate and communicated that it is prepared to consider adding a SOFR term rate as a benchmark interest rate in the future.
  2. Confirm its decisions that the amendments in the final Accounting Standards Update should be applied on a prospective basis for qualifying new or redesignated hedging relationships entered on or after the date of adoption and that no additional disclosure should be required.
  3. Retain the scope of the existing project and add a separate project to the Board’s agenda to facilitate the LIBOR to SOFR transition and mitigate the effects on financial reporting.
  4. Require that the effective date of this Update coincide with the effective date of Update No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, if an entity has not applied Update 2017-12. If an entity already has applied Update 2017-12, the effective date of this Update will be as follows with early application permitted in any annual or interim period:
    1. For public business entities, the amendments in this Update will be effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.
    2. For all other entities, the amendments in this Update will be effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.
 Analysis of Costs and Benefits

The Board concluded that it has received sufficient information and analysis to make an informed decision on the issues presented and that the expected benefits of the amendments justify the expected costs.

Next Steps

The Board directed the staff to draft a final Accounting Standards Update for vote by written ballot.


Financial instruments—credit losses implementation. The Board discussed and made decisions related to the following issues as a follow-up to the June 11, 2018 meeting of the Transition Resource Group for Credit Losses:
  1. Topic 1A: Capitalized Interest
  2. Topic 1B: Refinancing and Loan Prepayments
  3. Topic 2A: Inclusion of Accrued Interest in Defining Amortized Cost Basis
  4. Topic 2B: Reversal of Accrued Interest on Nonaccrual Loans
  5. Topic 3: Transfers of Loans and Debt Securities between Categories
  6. Topic 4: Recoveries
Topic 1A: Capitalized Interest and Topic 1B: Refinancing and Loan Prepayments

The Board decided that no amendments to Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326):  Measurement of Credit Losses on Financial Instruments, are necessary for issues raised by stakeholders related to (a) capitalized interest and (b) refinancing and loan prepayments.

Topic 2A: Inclusion of Accrued Interest in Defining Amortized Cost Basis

The Board decided to provide relief for the measurement, presentation, and disclosure requirements for accrued interest receivable balances. Specifically, the Board decided to amend the guidance to allow entities to:
  1. Measure the allowance for credit losses on accrued interest receivable balances separately from other components of the amortized cost basis of associated financial assets and net investments in leases.
  2. Make an accounting policy election to present accrued interest receivable balances and the related allowance for credit losses for those accrued interest receivable balances separately from the associated financial assets and net investments in leases on the balance sheet. If the accrued interest receivable balances and the related allowance for credit losses are not presented as a separate line item on the balance sheet, an entity would be required to disclose where the accrued interest receivable balances and the related allowance for credit losses are presented (that is, which line item on the balance sheet).
  3. Elect a practical expedient to meet the disclosure requirements for certain disclosures. For example, an entity may disclose the total amount of accrued interest receivable instead of tracing accrued interest amounts included in amortized cost basis to each origination year and by class of financing receivable for vintage disclosures.
Topic 2B: Reversal of Accrued Interest on Nonaccrual Loans

The Board decided to amend the guidance to allow entities to:
  1. Make an accounting policy election to reverse accrued interest either by an adjustment to interest income or by writing off accrued interest amounts by deducting from the allowance for credit losses.
  2. Make a separate accounting policy election to exclude accrued interest receivable balances from the calculation of the allowance for credit losses. The accounting policy election would be contingent on the entity having an accounting policy in place that results in the timely reversal or writeoff of any unpaid accrued interest.
Both accounting policy elections would be made at the class of financing receivable or major security type level.

Topic 3: Transfers of Loans and Debt Securities between Categories

The Board decided to amend the guidance to:
  1. Require entities to reverse an existing valuation allowance or allowance for credit losses for loans and debt securities prior to the transfer of financial assets between held-for-sale and held-for-investment or available-for-sale and held-to-maturity categories. Subsequent to the transfer, an entity would be required to establish an appropriate valuation allowance or allowance for credit losses, whichever is applicable.
  2. Make existing writeoff guidance applicable to all transfers of financial assets between held-for-sale and held-for-investment or available-for-sale and held-to-maturity categories.  
  3. Require entities to present all transfers between categories on a gross basis in the income statement.
Topic 4: Recoveries

The Board decided:
  1. To amend the guidance to require entities to consider expected recoveries when measuring the allowance for credit losses.
  2. To amend the guidance to limit the scope of expected recoveries to only include amounts collected from the borrower.
  3. An entity should not include fair value amounts greater than the amortized cost basis of financial assets for purposes of measuring the allowance for credit losses at the reporting date. However, the Board directed the staff to include a question in the proposed Update focused on extending recoverable amounts to include payments from the sale of delinquent financial assets or underlying collateral.