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.
Financial Instruments—Classification and Measurement. The Board continued redeliberating the February 2013 proposed Accounting Standards Update, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, specifically discussing (1) the impairment of investments in equity securities accounted for under the equity method of accounting and (2) probability thresholds in the impairment assessment of investments in equity securities without readily determinable fair values measured under the practical expedient. The practical expedient allows such securities to be measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical investment or a similar investment of the same issuer.
Impairment of Investments in Equity Securities Accounted for under the Equity Method of Accounting
The Board decided to remove investments in equity securities accounted for under the equity method of accounting from the scope of this project. Based on this decision, current generally accepted accounting principles (GAAP) would be retained.
Probability Thresholds in the Impairment Assessment of Investments in Equity Securities Without Readily Determinable Fair Values
The Board decided to remove the threshold of more likely than not from the impairment assessment of investments in equity securities without readily determinable fair values, while retaining the significance threshold.
Accounting for Income Taxes—Intra-entity Asset Transfers and Balance Sheet Classification of Deferred Taxes. The Board deliberated the following two issues related to accounting for income taxes.
Issue 1: Intra-Entity Asset Transfers
The Board decided to require recognition of the current and deferred income tax consequences of an intra-entity asset transfer when the transfer occurs. Current GAAP requires that both the buyer and the seller defer the recognition of the current and deferred income tax consequences until the asset or assets have been sold to an outside party.
The Board decided to require modified retrospective transition with a cumulative catch-up adjustment to opening retained earnings in the period of adoption.
The Board decided to require at transition, disclosure of (1) the nature of and reason for the change in accounting principle and (2) certain quantitative information about the change in accounting principle.
Issue 2: Balance Sheet Classification of Deferred Income Taxes
The Board decided to require that all deferred income tax assets and liabilities be presented as noncurrent in a classified statement of financial position. Current GAAP requires that deferred income taxes for each tax-paying component of an entity be presented in two classifications in a classified statement of financial position: (1) a net current asset or liability and (2) a net noncurrent asset or liability.
The Board decided to require prospective transition.
The Board decided to require at transition, disclosure (1) of the nature of and reason for the change in accounting principle and (2) that prior periods were not restated.
The Board directed the staff to draft a proposed Accounting Standards Update for vote by written ballot with a comment period of approximately 120 days.
The Board expects that the effective date for both issues will be the same. For public companies, the expected effective date will be annual periods, including interim periods within those annual periods, beginning after December 15, 2016. For private companies, the expected effective date will be annual periods beginning after December 15, 2017, and interim periods thereafter. Private companies would be allowed to adopt the new guidance early, but not before the effective date for public companies. If a private company elects early adoption, it must do so for both issues.