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 discussed a concept for determining initial carrying amounts of assets and liabilities. No decisions were reached. The next step of the project is yet to be determined.
Revenue Recognition—Narrow Scope Improvements and Practical Expedients. The FASB and the IASB (the Boards) met to discuss issues emerging from meetings of the Joint Transition Resource Group for Revenue Recognition (TRG). The Boards discussed the following implementation issues related to the guidance in Topic 606, Revenue from Contracts with Customers, and IFRS 15, Revenue from Contracts with Customers (collectively, the new revenue standard):
- Practical expedients upon transition—contract modifications and completed contracts
- Presentation of sales taxes collected from customers: gross versus net
- Noncash consideration
- Principal versus agent (reporting revenue gross versus net).
The Boards decided to provide a practical expedient on transition that would permit an entity to account for a modified contract by:
- Identifying all the satisfied and unsatisfied performance obligations in the contract at the contract modification adjustment date (CMAD) reflecting all modifications from contract inception to the CMAD
- Determining the transaction price at the CMAD reflecting all modifications from inception to the CMAD
- Allocating the transaction price to the performance obligations identified at the CMAD based on the historic standalone selling price of each good or service.
The IASB decided that entities electing either the full retrospective or modified retrospective transition method would use the beginning of the earliest period presented as the CMAD.
The IASB decided to provide a practical expedient that would permit an entity electing the full retrospective approach to apply the new revenue standard retrospectively only to contracts that are not completed contracts as of the beginning of the earliest period presented. A completed contract is a contract for which the entity has transferred all of the goods and services identified in accordance with IAS 11, Construction Contracts, IAS 18, Revenue, and related Interpretations.
The FASB decided not to add a similar practical expedient to Topic 606.
The Boards decided to require entities to disclose the use of either of the above practical expedients and, to the extent reasonably possible, a qualitative assessment of the estimated effect of applying the expedient(s).
The FASB decided to make a technical correction for application of the full retrospective approach upon transition. An entity would not be required to disclose what its financial information would have been under legacy GAAP in the period of adoption of the new revenue standard.
Presentation of Sales Taxes Collected from Customers: Gross versus Net
The FASB decided to provide a practical expedient that would permit entities, as an accounting policy election, to present amounts collected from customers for taxes within the scope of Subtopic 605-45 (paragraph 606-10-15-2(e)) net of the related amounts remitted (that is, such amounts would be excluded from the determination of the transaction price in the new revenue standard). An entity not electing this practical expedient would apply the new revenue standard, as issued, in determining whether those taxes should, or should not, be included in the transaction price. An entity would be required to disclose its accounting policy election to present tax amounts collected from customers on a net basis.
The IASB decided not to add a similar practical expedient to IFRS 15.
The FASB decided to clarify the guidance in the new revenue standard to require that noncash consideration be measured at contract inception.
The FASB also decided to clarify that when the fair value of the noncash consideration varies due to both the form of the consideration and reasons other than the form of consideration, the constraint on variable consideration would only apply to variability resulting from reasons other than the form of the consideration.
The IASB decided not to make any amendments to the requirements for noncash consideration or the accompanying Illustrative Example No. 31. The IASB noted that the approach required by the FASB’s amendment, if finalized, would not be the only acceptable interpretation of IFRS 15. The IASB directed its staff to monitor the progress of the FASB on this topic.
The FASB decided to amend the collectibility guidance in Step 1 (Identifying the Contract) in Topic 606 to clarify:
- When a contract is “terminated” in accordance with paragraph 606-10-25-7.
- That the objective of the collectibility threshold in paragraph 606-10-25-1(e) is to assess an entity’s exposure to credit risk for the goods and services that will be transferred to the customer. Therefore, in some circumstances, an entity might not assess its ability to collect all of the consideration in the contract in order to meet the collectibility threshold.
Principal versus Agent (Reporting Revenue Gross versus Net)
The staff provided the Boards with an update about the ongoing work on principal versus agent considerations (gross versus net revenue reporting).
The FASB research project includes consideration of legacy GAAP and the new revenue standard, both with respect to principal versus agent considerations and scenarios in which an entity sells goods or services to end customers using an agent but does not know how much the end customer was charged. The discussion of this topic was educational; the FASB did not reach any technical decisions.
The IASB decided that it would focus its ongoing work on determining whether an entity is acting as a principal or an agent. It decided that it would not address implementation questions relating to scenarios in which an entity sells goods or services to end customers using an agent but does not know how much the end customer was charged.
The FASB directed the staff to draft a proposed Accounting Standards Update for vote by written ballot that will include the tentative decisions reached by the FASB. The FASB decided on a 45-day comment period for the proposed Update.
The IASB decided to incorporate its tentative decisions with respect to contact modifications and completed contracts into the Exposure Draft of proposed clarifications to IFRS 15 that it decided to develop at its February meeting. The IASB expects to approve the clarifications to be included in this Exposure Draft at its meeting in June 2015.
Agenda Prioritization. The Board discussed the results of staff research on nine potential projects and made the following decisions.
The Board added the following three projects to its agenda:
- Disclosures about interest income on purchased debt securities and loans—The project is expected to enhance the transparency of interest income on purchased debt securities and loans.
- Simplification of the equity method of accounting—The project is expected to reduce cost and complexity by simplifying two aspects of the equity method of accounting:
- The requirement that an entity account for the difference between the cost of an investment and the amount of underlying equity in net assets of an investee (referred to as “basis difference”) as if the investee were a consolidated subsidiary and related disclosures
- The requirement that an entity retroactively adopt the equity method of accounting if an investment that was previously accounted for on other than the equity method becomes qualified for use of the equity method by an increase in the level of ownership interest.
- Simplification of accounting for measurement period adjustments in a business combination—The project is expected to simplify the accounting by removing the requirement to account for measurement period adjustments retrospectively.
- Accounting for embedded put and call options in a debt instrument—The project is expected to clarify the existing guidance for assessing whether the economic characteristics and risks of an embedded put or call option in a debt instrument are clearly and closely related to the economic characteristics and risks of its debt host.
- Effect of derivative contract “novations” on existing hedge accounting relationships—The project is expected to clarify if and when the novation of a derivative instrument that is part of an existing hedge accounting relationship under Topic 815 should result in a requirement to dedesignate that hedging relationship and, therefore, discontinue the application of hedge accounting.
- Accounting for reacquired rights in a business combination
- Income statement presentation of credit card and other payment processing costs
- Balance sheet offsetting of payables and receivables arising from securities lending transactions that are cleared through a regulated central counterparty and subject to a master netting arrangement.
In addition to adding projects to its agenda, the Board began deliberations on two of the projects:
Simplifying the Equity Method of Accounting
The Board decided to eliminate both the requirement that entities account for the basis difference as if the investee were a consolidated subsidiary and the related disclosures.
The Board decided to require an entity to adopt this change using a modified prospective approach, which means an entity would cease amortization of all remaining basis differences as of the effective date of the change.
The Board decided that in addition to providing the disclosures required by paragraphs 250-10-50-1(a) and 250-10-50-50-2 in the year of adoption, entities also would disclose the amortization of basis differences recognized in the comparable prior period.
The Board decided to eliminate the requirement that entities retroactively adopt the equity method of accounting if an investment that was previously accounted for on other than the equity method becomes qualified for use of the equity method by an increase in the level of ownership interest.
The Board decided this change would apply prospectively to ownership level increases occurring after the effective date of the change.
The Board decided that no disclosures would be required in the period of adoption.
The Board directed the staff to draft a proposed Accounting Standards Update for vote by written ballot, with a comment period of 60 days.
Accounting for Measurement Period Adjustments in a Business Combination
The Board decided that during the measurement period, an acquirer would recognize adjustments of provisional amounts in the reporting period in which the adjustment amount is determined. The acquirer would record, in that period, the cumulative effect on earnings of changes in depreciation, amortization, or other income effects, as a result of the change to the provisional amount.
The Board decided that in the period of adoption entities would apply this change prospectively to adjustments of provisional amounts occurring after the effective date of this guidance.
The Board decided to require in the period of adoption the disclosures described in paragraphs 250-10-50-1(a) and 250-10-50-2.
The Board directed the staff to draft a proposed Accounting Standards Update for vote by written ballot, with a comment period of 45 days.