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.
Conceptual Framework—Measurement. The Board continued its deliberations, discussing different methods of determining carrying amounts and changes in carrying amounts. The Board decided that the following general categories of methods should be discussed in the proposed Concepts Statement chapter on measurement:
- Prices in transactions in which the entity participated
- Current prices observed or estimated by the entity
- Discounted or undiscounted estimates of future cash flows other than estimates of market prices
- Other adjustments to carrying amount: accruals, systematic allocations, and allowances for impairments.
Customer’s Accounting for Fees in a Cloud Computing Arrangement. The Board redeliberated changes proposed in the August 2014 Exposure Draft, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, in light of feedback received through comment letters and other outreach.
Changes to the FASB Accounting Standards Codification®
The Board affirmed its proposal that customers in cloud computing arrangements would determine whether a contract is a software license or a service contract by applying the guidance that cloud service providers currently use to make that determination (that is, incorporate paragraphs 985-605-55-121 through 55-123 into Subtopic 350-40 of the Codification).
In addition, the Board decided:
- Not to expand the scope of the final Update to include the accounting for upfront costs incurred in cloud computing arrangements
- That additional guidance about the application of the criteria included in paragraphs 350-40-15-4A through 15-4B is not necessary
- To supersede paragraph 350-40-25-16 of the Codification as part of the final Update, meaning that customers will no longer analogize to the leases guidance in Topic 840 in determining the asset acquired in a software licensing arrangement; rather, customers will account for acquired software licenses in the same manner as the other acquired intangible assets.
The Board affirmed its proposal to allow reporting entities to choose between a retrospective or prospective transition method. By prospective transition, the Board means an entity would apply the guidance in the final Update to all cloud computing arrangements entered into, or materially modified, after the effective date.
The Board also affirmed the proposed effective date of the changes:
- Public business entities would initially apply the change in annual periods, including interim periods within those annual periods, beginning after December 15, 2015.
- All other entities would initially apply the change in the first annual period beginning after December 15, 2015, and interim periods thereafter.
The Board affirmed its proposal that an entity electing the prospective transition method should disclose, in the period of the change, the nature of and reason for the change in accounting principle, the transition method, and a qualitative description of the financial statement line items affected by the change.
In addition, the Board affirmed its proposal that an entity applying the retrospective transition method should provide quantitative disclosures about the effect of the change, such as those required by Topic 250, Accounting Changes and Error Corrections.
Authorization to Proceed to a Ballot Draft
The Board directed the staff to draft a final Accounting Standards Update for vote by written ballot.
Insurance—Targeted Improvements to the Accounting for Long-Duration Contracts. The Board continued redeliberations, discussing alternative methods for simplifying the amortization of deferred acquisition costs.
Deferred acquisition costs relating to certain investment contracts would continue to be amortized using an effective interest method.
Deferred acquisition costs for all other types of long-duration contracts would be amortized over the expected life of a book of contracts in proportion to the amount of insurance in force. When the amount of insurance in force is variable and cannot be reliably predicted or is otherwise not readily determinable, however, a straight-line method in proportion to the number of contracts outstanding would be used.
At future Board meetings, the Board will continue to deliberate other targeted improvements to accounting for long-duration contracts.
Disclosure Framework: Disclosure Review—Fair Value Measurement. The Board discussed how it might change disclosure requirements to further promote the use of discretion by reporting entities. The Board also discussed how some of those changes could be applied to disclosures about fair value measurements.
The Board decided the disclosure Section in a Topic:
- Would state that an entity should provide the disclosures to the extent material
- Would not include language that limits the use of discretion (for example, “An entity shall at a minimum provide…”)
- Would include a reference to Topic 235, Notes to Financial Statements, and the Board would modify that Topic to provide additional guidance on applying materiality to note disclosures. That guidance would include:
- Materiality is applied to disclosures individually and in the aggregate; therefore, some, all, or none of the requirements in a disclosure Section may be material.
- A disclosure is material if it meets the U.S. Supreme Court’s description of materiality, which comes from court cases and interpretations.
- Consistent with the U.S. Supreme Court’s description, qualitative and quantitative disclosures generally should be evaluated as material based on whether there is a substantial likelihood that the omitted disclosure would have been viewed by a reasonable user as having significantly altered the total mix of information made available in making a decision.
- If an entity does not provide a GAAP disclosure because management has concluded the information is not material, the omission should not be considered an accounting error.
The Board decided that when setting disclosures requirements, it would not distinguish between a minimum and expanded set of disclosures.
The Board decided that, in general, the objectives for disclosures within each Topic would be developed using the decision questions from the proposed concepts that are used to identify relevant disclosure requirements. Specifically, the objective for the disclosures in Topic 820, Fair Value Measurement, would be as follows:
- The objective of the following disclosures is to provide users of financial statements with information useful in assessing the following:
- The different ways an entity arrives at its measures of fair value, including the judgments and assumptions that the entity makes
- The effects of changes in fair value on the amounts reported in financial statements
- The uncertainty in the fair value measurement of assets and liabilities
- How fair value measurements change from period to period.
Simplifying the Presentation of Debt Issuance Cost. The Board redeliberated the October 2014 Proposed Accounting Standards Update, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Cost, in light of stakeholder feedback received.
Presentation of Debt Issuance Cost
The Board affirmed the proposal to require that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, in the same manner as debt discounts or premiums.
The Board affirmed the proposal to require retrospective application of the change to all periods presented in the financial statements.
The Board affirmed the proposal to require disclosure of the nature of and reason for the change in accounting principle, a description of the prior-period information that has been retrospectively adjusted, and the effect of the change on the financial statement line items.
Effective Date and Early Adoption
The Board decided that public business entities would be required to apply the change in annual periods, and interim periods within those annual periods, beginning after December 15, 2015. Nonpublic entities would apply the change in annual periods beginning after December 15, 2015, and interim periods beginning after December 15, 2016. The Board decided to allow all entities the option of early application.
The Board directed the staff to draft an Accounting Standards Update for vote by written ballot.