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.

November 5, 2014 FASB Board Meeting

FASB Endorsement of Private Company Council (PCC) Consensus. The Board endorsed the following decision on PCC Issue No. 13-01A, “Accounting for Identifiable Intangible Assets in a Business Combination,” reached by the PCC at its September 16, 2014 meeting:

A private company may elect not to recognize the following intangible assets in a business combination:
  1. Customer-related intangible assets (CRIs) unless they are capable of being sold or licensed independently from the other assets of a business
  2. Non-competition agreements (NCAs).
Although CRIs often would not meet the criterion for recognition, some CRIs that may meet the criterion for recognition include mortgage servicing rights, commodity supply contracts, and core deposits.

The current disclosures in Topic 805, Business Combinations, continue to apply under this accounting alternative. They include a qualitative description of intangible assets that do not qualify for separate recognition, including CRIs and NCAs that are not recognized under this accounting alternative.

If elected, the accounting alternative should be applied prospectively for all business combinations entered into after the effective date with no option to apply retrospective application.

An entity that elects this accounting alternative must adopt the private company accounting alternative for goodwill described in FASB Accounting Standards Update No. 2014-02, Intangibles—Goodwill and Other (Topic 350): Accounting for Goodwill.

The Board directed the staff to draft an Accounting Standards Update for vote by written ballot. For further details on this issue, see the PCC Decision Overview document.

Accounting for Goodwill for Public Business Entities and Not-for-Profits and the Accounting for Identifiable Intangible Assets in a Business Combination for Public Business Entities and Not-for-Profits. The Board discussed additional outreach and research performed by the staff on the subsequent measurement of goodwill, including the results of the IASB’s Post-Implementation Review (PIR) of IFRS 3, Business Combinations, and the results of a study on the use of the qualitative assessment introduced in FASB Accounting Standards Update No. 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment.

The Board decided to add a separate project to its agenda for public business entities and not-for-profits on the accounting for identifiable intangible assets in a business combination. This project will evaluate whether certain intangible assets should be subsumed into goodwill, with a focus on customer relationships and noncompete agreements.

The Board also directed the staff to perform additional research on the amortization of goodwill, with a focus on identifying the most appropriate useful life if goodwill were amortized, and on simplifying the impairment test.

The Board asked the staff to consider the implications of potentially subsuming intangible assets into goodwill in conjunction with its additional research and to consider IASB activities on goodwill and intangible assets in response to its PIR on IFRS 3.

Agenda Decisions and Prioritization: The Board discussed the results of staff research and added the following three projects to the Emerging Issues Task Force’s agenda:
  1. Recognition of breakage in prepaid cards that may be redeemed only for goods and services—This issue addresses whether and when an entity should derecognize a prepaid card liability that exists before redemption of the card at a third-party merchant. This issue applies to prepaid cards that may be redeemed only for goods and services at a third-party merchant. This issue does not apply to arrangements in which a prepaid card issuer directly provides goods or services to a card holder or prepaid cards that are refundable or redeemable for cash.
  2. Application of the normal purchases and normal sales (NPNS) scope exception to certain electricity contracts within nodal energy markets—This issue addresses whether a contract for the physical delivery of electricity on a forward basis within a nodal energy market in which one of the counterparties incurs locational marginal pricing charges (or credits) payable to the independent system operator meets the physical delivery criterion of the NPNS scope exception.
  3. Employee benefit plans, specifically related to:
    1. Fair value hierarchy—This issue addresses differences between Topic 820, Fair Value Measurement, and Topic 960, Plan Accounting—Defined Benefit Pension Plans, Topic 962, Plan Accounting—Defined Contribution Pension Plans, and Topic 965, Plan Accounting—Health and Welfare Benefit Plans, with respect to the amount of detail to be disclosed. Specifically, the Board will consider the extent of aggregation or disaggregation required for (i) participant-directed investments and (ii) disclosures about appreciation/depreciation in the value of significant types of investments.
    2. Classes of assets—This issue addresses conflicting disclosure requirements within GAAP for disaggregation of assets. Topic 820 requires that assets be disaggregated based on their nature, characteristics, and risks, while Topics 960, 962, and 965 require disaggregation based on general asset type.
    3. Fully benefit-responsive investment contracts—This issue considers whether fully benefit-responsive investment contracts should be measured at contract value rather than at fair value, with an adjustment to arrive at contract value, as is currently required.

[Revised 11/14/14]—Accounting for Financial Instruments—Hedging. The staff presented its research project on hedge accounting at the agenda prioritization meeting. The purpose of the meeting was for the Board to decide on (1) whether to move this project to its technical agenda and (2) which topics should be included in the project's scope.

The Board decided to add the Accounting for Financial Instruments—Hedging project to its technical agenda. Based on this decision, the Board decided to include the following preliminary list of topics in the project's scope:
  1. Hedge effectiveness requirements
  2. Component hedging:
    1. Nonfinancial items
    2. Financial instruments
  3. Potential elimination of the shortcut and critical terms match methods
  4. Voluntary dedesignations of hedging relationships
  5. Recording of ineffectiveness for cash flow underhedges
  6. Benchmark interest rates
  7. Simplifying hedge documentation requirements
  8. Presentation and disclosure of hedging instruments, hedged items, and ineffectiveness.
The Board instructed the staff to analyze a group of issues holisitcally due to their interrelated nature. The group of issues includes hedge effectiveness requirements, component hedging for financial and nonfinancial items, potential elimination of the shortcut and critical terms match methods, benchmark interest rates, and presentation and disclosure. The staff will first come back to the Board with a series of nondecision making meetings on these topics.
Liabilities and Equity–Short-Term Improvements
. The staff presented its pre-agenda research project on financial instruments with characteristics of liabilities and equity. The staff asked the Board to make a decision on (1) whether to add a short-term project to its agenda to make selected improvements to the accounting for liabilities and equity and, if so, (2) which issues should be included in the project’s scope.

The Board decided to add a project to address the following:
  1. Determining whether an instrument (or embedded feature) is indexed to an entity’s own stock, specifically as it relates to features where the strike price adjusts down based the pricing of future equity offerings
  2. The indefinite deferral in Topic 480 related to mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests by replacing the deferral with a scope exception
  3. Freestanding contracts indexed to, and potentially settled in, an entity’s own stock, specifically simplification of the additional conditions necessary for equity classification
  4. Improving the navigation within the Codification.
The Board directed the staff to continue its research work on issues related to the accounting for convertible instruments.