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—Narrow Scope Improvements and Practical Expedients. The Board met to discuss two narrow-scope issues related to Topic 606, Revenue from Contracts with Customers.
The Board discussed proposed changes to the collectibility guidance in Topic 606 made at its March 18, 2015 Board meeting, specifically, whether to affirm those decisions or pursue a different approach.
The Board affirmed its previous decision that collectibility should be assessed in determining whether a contract exists (that is, whether an entity has passed Step 1 of the revenue model in Topic 606). In addition, the Board decided to propose the following improvements to the collectibility guidance:
- Clarify 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
- Add a criterion to the alternate recognition model in paragraph 606-10-25-7 such that if collectibility is not probable, an entity should recognize revenue in the amount of consideration received when the entity has transferred control of the goods or services, the entity has stopped transferring additional goods or services (and has no obligation to transfer additional goods or services), and the consideration received from the customer to date is nonrefundable.
The Board discussed whether to clarify the transition guidance on completed contracts included in Topic 606.
The Board decided to clarify that a completed contract is one for which all (or substantially all) of the revenue was recognized under revenue guidance in effect before the date of initial application. Accounting for elements of a contract that do not affect revenue under legacy GAAP would not be relevant to the assessment of whether a contract is complete.
The Board also decided to amend the transition guidance in Topic 606 to permit an entity to apply the modified retrospective transition approach to all contracts, rather than only those contracts that have not been completed on the date of adoption.
The Board had previously granted the staff permission to prepare a ballot draft of proposed Accounting Standards Update, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. The Board affirmed that decision and instructed the staff to include the proposed amendments to the transition guidance for completed contracts in that proposed Update.
FASB Endorsement of Private Company Council (PCC) Consensus. The Board discussed the consensuses-for-exposure reached by the PCC at its July 21, 2015 meeting.
Assessing the Preferability of Private Company Accounting Alternatives
The Board endorsed the PCC’s consensus-for-exposure to provide private companies with an unconditional one-time election of a private company accounting alternative within Accounting Standards Updates No. 2014-02, Intangibles—Goodwill and Other (Topic 350): Accounting for Goodwill; No. 2014-03, Derivatives and Hedging (Topic 815): Accounting for Certain Receive-Variable, Pay Fixed Interest Rate Swaps—Simplified Hedge Accounting Approach; No. 2014-07, Consolidation (Topic 810): Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements; and No. 2014-18, Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination. This proposed guidance would allow private companies to forgo an initial preferability assessment otherwise required under Topic 250, Accounting Changes and Error Corrections, upon first election, while any subsequent elections of the accounting alternatives would require such an assessment.
The Board decided to consider extending the unconditional one-time election to future private company accounting alternatives developed using the Private Company Decision-Making Framework on a standard-by-standard basis. Thus, when deliberating a future standard, the Board will consider whether an unconditional one-time election of a private company accounting alternative is appropriate given the facts and circumstances of that standard.
Extending Transition Guidance beyond the Effective Date for Electing Private Company Accounting Alternatives
The Board endorsed the PCC’s consensus-for-exposure to extend the transition guidance in Update 2014-02 on goodwill beyond the effective date.
The Board endorsed the PCC’s consensus-for-exposure to extend the transition guidance in Update 2014-03 on derivatives and hedging beyond the effective date. This extension would permit a private company to apply the simplified hedge accounting approach to existing swaps (transition exception) if it has not previously applied the simplified hedge accounting approach. However, the transition exception would not apply to subsequent elections of the simplified hedge accounting approach.
The Board directed the staff to draft a proposed Accounting Standards Update for vote by written ballot, with a comment period of 45 days.