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 how to describe or explain the following:
- The level of relevance for achieving the objective of financial reporting of market exit prices for assets that are not expected to be sold
- The level of information about market participants’ views that is provided by market prices estimated by management
- Why regularly adjusting to market exit prices is not the appropriate way to determine changes in carrying amounts of inventories that will be sold
- How using different methods of determining changes in carrying amounts affects the understandability of a set of financial statements
- The reasons for using systematic allocation (for example, depreciation, amortization, or accretion) as a method of determining changes in carrying amounts (subsequent measurements) for assets and liabilities
- Why providing information to assess the performance of the reporting entity or its management is not an objective (or the objective) of financial reporting.
Conceptual Framework: Presentation. The Board decided on the following:
- Not to amend the definitions of revenues, expenses, gains, and losses in this phase of the project
- To acknowledge in the proposed Chapter on presentation in FASB Concepts Statement No. 8, Conceptual Framework for Financial Reporting, that (a) existing standards require or permit classifying some items of comprehensive income in other comprehensive income and later reclassifying them into net income and (b) there is no conceptual basis for determining which items qualify for that treatment
- To clarify that FASB Concepts Statement No. 5, Recognition and Measurement in Financial Statements of Business Enterprises, does not preclude allocating cash receipts between categories in the cash flow statement based on estimates.
Disclosure Framework—Entity’s Decision Process. The Board discussed external review comments received on the forthcoming proposed amendments to Chapter 3, Qualitative Characteristics of Useful Financial Information, of FASB Concepts Statement No. 8, Conceptual Framework for Financial Reporting (Chapter 3 of Concepts Statement 8). The Board decided that the proposed amendments would include the following:
- A statement that materiality is a legal concept
- Information on how a legal concept is established and may be changed (including references to legislative, executive, or judicial action)
- A summary of the current definition of materiality.
- That the FASB Accounting Standards Codification® state that materiality is a legal concept
- To include in the Basis for Conclusions of the proposed Update a discussion of materiality consistent with the decisions reached on the forthcoming proposed amendments to Chapter 3 of Concepts Statement 8.
Disclosures about Hybrid Financial Instruments That Contain Bifurcated Embedded Derivatives. The Board discussed the feedback received through comment letters on the proposed Accounting Standards Update, Derivatives and Hedging (Topic 815): Disclosures about Hybrid Financial Instruments with Bifurcated Embedded Derivatives.
The Board concluded that the benefits of the proposed disclosures would not justify the costs associated with preparing the disclosures and decided to remove the project from the Board’s technical agenda.
Revenue Recognition—Principal versus Agent (Reporting Revenue Gross versus Net)
Estimating Gross Revenue As a Principal
The Board discussed contracts in which an entity is a principal, but is unaware of the price charged to the customer for the entity’s goods or services by an intermediary (or agent). The Board considered whether the entity should estimate the price charged to the end customer by the intermediary in determining its transaction price. The Board decided not to include the issue of estimating gross revenue as a principal in the scope of this project because of the narrow-scope nature of the issue and, as a result, to maintain convergence with IFRS 15, Revenue from Contracts with Customers. In deciding not to include this issue in the scope of the project, the Board instructed the staff to include in the Basis for Conclusions of the proposed Accounting Standards Update on principal versus agent considerations the Board’s reasons for not including the issue. Those reasons include the Board’s view that the transaction price guidance in Topic 606, Revenue from Contracts with Customers, already addresses this issue and that the Board does not support estimating gross revenue in those cases.
Principal versus Agent Considerations
The Board granted the staff permission to prepare a ballot draft of a proposed Accounting Standards Update based on the tentative decisions from the June 22, 2015, joint Board meeting on principal versus agent considerations. The Board decided on a 45-day comment period for the guidance in that proposed Update.
The staff will proceed to drafting guidance in a proposed Accounting Standards Update for vote by written ballot.
Simplifying the Balance Sheet Classification of Debt. The Board concluded its initial deliberations on this project.
The Board decided to clarify that convertible debt instruments and liability-classified mandatorily redeemable financial instruments are included in the scope of the proposed guidance.
Subjective Acceleration Clauses
The Board agreed that under the proposed classification principle, subjective acceleration clauses affect the classification of the debt when triggered.
Waiver of Debt Covenant Violations
The Board decided to provide an exception to the classification principle for waivers of debt covenant violations received after the reporting date but before financial statements are issued. The exception would apply to all waivers, except for those that result in a debt modification or an extinguishment (as defined in Subtopic 470-50, Debt—Modifications and Extinguishments). This exception would retain the probability assessment that is performed under existing generally accepted accounting principles (GAAP) in paragraph 470-10-45-1(b). The Board also decided to require separate presentation in the balance sheet for debt that is classified as noncurrent as a result of this exception.
The Board decided to require disclosure of debt covenant violations and disclosure of significant subjective acceleration clauses and debt covenants.
Transition and Transition Disclosures
The Board decided that in the first interim and annual financial statements following the effective date, an entity would apply the proposed amendments on a prospective basis to all debt that exists as of that date. The Board also decided that the following transition disclosures on Topic 250, Accounting Changes and Error Corrections, should be required:
- The nature of and reason for the change in accounting principle
- The effect of the change on affected financial statement line items in the current period.
The Board directed the staff to draft guidance in a proposed Accounting Standards Update for vote by written ballot, with a comment period of 60 days.