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.

May 28, 2014 FASB Board Meeting

Agenda Decisions. The Board decided to add two projects to its agenda as part of the FASB’s Simplification Initiative. The goal of the FASB’s Simplification Initiative is to reduce cost and complexity in U.S. GAAP while maintaining or improving the usefulness of the information.

Simplifying the Measurement of Inventory

The Board decided that inventory would be measured at the lower of cost and net realizable value. A reporting entity would no longer consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory.

Recurring Disclosure
The Board decided not to add or remove recurring disclosures for inventory.

Transition and Transition Disclosure
The Board decided to require prospective application for the measurement of inventory after the date of adoption.

The Board decided that the only disclosure required at transition is the nature of and reason for the change in accounting principle. Entities would provide that disclosure in the first interim and annual period of adoption.

Simplifying Income Statement Presentation by Eliminating Extraordinary Items

Presentation and Recurring Disclosure
The Board decided to remove the concept of extraordinary items from U.S. GAAP. Consequently, no item would be presented or disclosed as an extraordinary item.

The presentation and disclosure requirements about items that are unusual or infrequent in Subtopic 225-20 would be retained in U.S. GAAP.

Transition and Transition Disclosure
The Board decided to require prospective application. No item would be presented or disclosed as an extraordinary item after the date of adoption. Prior periods would not be restated.

The Board decided that the only required transition disclosure is that an entity would disclose, if applicable, that an item included in profit and loss after adoption relates to an item presented as an extraordinary item before the date of adoption.

Next Steps

The Board directed the staff to draft a proposed Accounting Standards Update for vote by written ballot for each project. The comment letter period will be approximately 75 to 90 days.

The Board expects that each standard will be effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. Early adoption would be permitted.

Financial Statements of Not-for-Profit Entities. The Board continued its deliberations, focusing on the presentation and disclosure of information useful in assessing liquidity. The Board decided that an entity should define the time horizon it uses to manage its liquidity (for example, 30, 60, or 90 days) and disclose the following information:
  1. Quantitative information about:
    1. The total amount of financial assets
    2. Amounts that are not available to meet cash needs within the time horizon because of restrictions (limits) imposed by contract (or law), donors, or actions of its governing board
    3. The total amount of financial liabilities that are due within that time horizon.
  2. Qualitative information about how the entity manages its liquidity. For example, an entity might disclose:
    1. Its strategy for addressing entity-wide risks that may affect liquidity, including its use of lines of credit
    2. Its policy for establishing liquidity reserves
    3. Its basis for determining the time horizon used for managing liquidity.

Disclosure Framework: Entity’s Decision Process. The Board discussed whether and how interim disclosure requirements should be modified and decided the following:
  1. To amend Topic 270, Interim Reporting, to reflect that disclosures about matters required to be set forth in annual financial statements should be provided on an updated basis in the interim report if there is a substantial likelihood that the updated information would be viewed by a reasonable investor as significantly altering the “total mix” of information available to the investor.
At a future meeting, the Board will discuss a staff analysis of disclosure requirements that should be included in Topic 270 that considers the feedback received on the recently issued proposed FASB Concepts Statement, Conceptual Framework for Financial Reporting, Chapter 8: Notes to Financial Statements.