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.
Revenue Recognition Research Projects. The Board discussed two of its research projects on revenue recognition—licenses and identifying performance obligations. The meeting was educational; no technical decisions were reached.
The Board discussed alternatives for resolving implementation issues about licenses of intellectual property promised in a contract with a customer.
The Board discussed alternatives for clarifying the guidance in Topic 606 and resolving implementation issues about (1) determining the nature of the entity’s promise in granting a license, (2) the scope and application of the exception for sales-based and usage-based royalties promised in exchange for a license of intellectual property, and (3) the effect of certain contractual restrictions in a license on identifying the promised goods or services in a contract with a customer.
Identifying Performance Obligations
The Board discussed alternatives for resolving implementation issues about identifying performance obligations in a contract with a customer.
The Board discussed alternatives for clarifying the guidance in Topic 606 and resolving implementation issues about (1) identifying the promised goods and services that would be subject to the separation guidance, (2) application of the separately identifiable principle, (3) accounting for shipping and handling services, and (4) possible technical corrections.
At a joint meeting with the IASB scheduled for February 18, 2015, the Board expects to decide whether to add projects to the technical agenda to address one or more of those issues and, if added, will begin deliberations.
Accounting for Financial Instruments—Impairment. The Board continued redeliberating the December 2012 proposed Accounting Standards Update, Financial Instruments—Credit Losses (Subtopic 825-15), specifically discussing the following issues:
- Disclosure requirements for available-for-sale (AFS) debt securities
- Roll-forward disclosures
- Definition of originations
- Applicability of disclosure requirements to entities other than public business entities
- Applicability of disclosure requirements to specific financial assets.
The Board decided to retain the disclosure requirements in current GAAP for AFS debt securities, updated for the general principles within the proposed Update regarding disclosing credit risk.
The Board decided not to require disclosure of a period-to period roll-forward of an entity’s portfolio of loans and debt securities measured at amortized cost and debt securities measured at fair value through other comprehensive income.
The Board affirmed the proposed requirement to disclose a period-to-period roll-forward of an entity’s allowance for expected credit losses, both for financial assets measured at amortized cost and fair value through other comprehensive income.
The Board decided to require that the credit quality indicators for all classes of financing receivables (excluding revolving lines of credit such as credit cards) that are disclosed under current GAAP be disaggregated by year of the asset’s origination (that is, vintage year). The Board decided to limit the disaggregation by vintage year to no more than five annual reporting periods, with the balance for financing receivables originated before the fifth annual reporting period shown in aggregate. The Board decided that for an interim reporting period, the year-to-date (YTD) originations of the current annual reporting period would be considered to be current-period originations. For example, in the second quarter of 20X8 annual reporting period the entity would disclose the originations for YTD 20X8, 20X7, 20X6, 20X5, 20X4, and 20X3 and prior years. The Board directed the staff to perform outreach to understand the usefulness, costs, and operability issues with preparers, users, auditors, and financial institution regulators for this disclosure requirement, and on the basis of the feedback received, the Board may reconsider the alternatives to the roll-forward disclosure requirements at a future meeting.
Definition of Originations
The Board decided that for the purpose of determining the vintage year for disaggregated credit quality disclosures, an entity would use the guidance for determining a new loan resulting from loan refinancing or restructurings in current GAAP (paragraphs 310-20-35-9 through 35-12).
Applicability of Disclosure Requirements to Entities Other Than Public Business Entities
The Board decided that the disclosure requirements related to credit risk and the recognition of credit losses should apply to all entities.
Applicability of Disclosure Requirements to Specific Financial Assets
The Board decided that the disclosure requirements that apply to loan commitments also should apply to financial guarantees not accounted for as insurance or at fair value through net income.
The Board decided that the disclosure requirements related to credit risk and the recognition of credit losses should apply to loans made by a not-for-profit entity to meet its mission.
The Board decided that all disclosure requirements related to credit risk and the recognition of credit losses, except for the requirement to disaggregate the credit quality indicators of those receivables by vintage, should apply to reinsurance receivables.
At the next Board meeting the Board plans to discuss transition guidance.
Disclosure Framework: Disclosure Review—Income Taxes. The Board began its review of disclosures related to income taxes, focusing on disclosures related to undistributed foreign earnings.
The Board decided that entities would be required to disclose the following:
- Income before taxes disaggregated between domestic and foreign earnings. Foreign earnings would be further disaggregated for any country that is significant to total earnings.
- Domestic tax expense recognized in the period for taxes on foreign earnings.
- Undistributed foreign earnings that are no longer asserted to be indefinitely reinvested during the current period and an explanation of the circumstances that cause the entity to make that assertion. Separate disclosure should be made for any country that is significant to the disclosed amount.
- A further disaggregation of the current requirement to disclose the temporary difference for the cumulative amount of indefinitely reinvested foreign earnings if any country represents at least 10 percent of the disclosed amount.
- Disaggregation of deferred tax liabilities (DTL) recorded for unremitted foreign earnings by country.
- An estimate of the unrecognized DTL on the basis of simplified assumptions.
- Past events or current conditions that have changed management’s plans for undistributed foreign earnings.