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.
Financial Statements of Not-for-Profit Entities. The Board discussed the staff’s summary of feedback received on the April 2015 proposed Accounting Standards Update, Not-for-Profit Entities (Topic 958) and Health Care Entities (Topic 954): Presentation of Financial Statements of Not-for-Profit Entities. The Board also discussed the recommended plan for redeliberations.
Plan for Redeliberations
The Board decided to divide its redeliberations of the proposed Update into two workstreams. The first workstream would reconsider the following issues that are not dependent on other projects and are improvements the Board might finalize in the near term:
- Net asset classification scheme, including:
- Disclosure of board-designated funds
- Underwater endowments
- Placed-in-service option for expirations of capital restrictions
- Expenses, including:
- Expenses by nature and an analysis of expenses by function and nature
- Netting of external and direct internal investment expenses against investment return
- Disclosure of netted investment expenses
- Enhanced disclosures about cost allocations
- Operating measures: improving disclosures by those not-for-profit entities that choose to present such a measure
- Improving disclosures of information useful in assessing liquidity
- Statement of cash flows: methods of presenting operating cash flows.
- Operating measures: all other elements of the proposal, including:
- Whether to require intermediate measure(s)
- Whether and how to define such measure(s) and what items should or should not be included in the measure(s)
- Alternative disaggregation approaches suggested by stakeholders
- Statement of cash flows: realignment of certain line items.
Insurance—Targeted Improvements to the Accounting for Long-Duration Contracts. The Board decided that the liability for future policy benefits for participating life insurance contracts would be calculated on the basis of expected future cash flows (including dividends). Future cash flows would be discounted using a high-quality fixed-income instrument yield, consistent with the Board’s previous decision for traditional long-duration and limited-payment contracts.
The Board also decided that entities would be required to update (1) cash flow assumptions using a retrospective approach and (2) discount rate assumptions using an immediate approach, consistent with the Board’s previous decision for traditional long-duration and limited-payment contracts. Under this assumption update method, the net premium ratio would be recalculated as of the contract inception date using actual historical experience and updated future cash flow assumptions. The revised net premium ratio would then be applied to derive a cumulative catch-up adjustment to be recorded in current-period earnings. In subsequent periods, the revised net premium ratio would be used to accrue the liability for future policy benefits. The net premium ratio would be capped at 100 percent. The net premium ratio would not be updated for discount rate changes; rather, the effect of changes in the discount rate assumption would be recorded immediately in other comprehensive income. The amount included in accumulated other comprehensive income would represent the difference between the carrying amount of the liability for future policy benefits measured using an updated discount rate and the discount rate at contract inception.
The Board will continue to deliberate other targeted improvements to accounting for long-duration contracts.
Business Combinations: Accounting for Identifiable Intangible Assets in a Business Combination for Public Business Entities and Not-for-Profit Entities. The Board discussed whether to change the initial recognition of customer-relationship intangible assets or noncompetition agreements acquired in a business combination for public business entities in light of the totality of the staff’s research and outreach conducted to date.
The Board decided to continue this project by continuing to engage with the international community on this matter. In particular, the Board directed the staff to research whether the usefulness of information provided by the recognition of acquired intangible assets is different for U.S. and international investors and if so, why that difference exists.
The Board deferred any decisions about whether not-for-profit entities should have the option to use the accounting alternative currently available to private companies (under which an entity can elect not to separately identify and recognize customer-related intangible assets that are not capable of being sold or licensed independently from the other assets of a business and noncompetition agreements) or be required to use the guidance for public business entities until decisions are made regarding whether to change the accounting for identifiable intangible assets for public business entities.
Business Combinations: Accounting for Goodwill for Public Business Entities and Not-for-Profit Entities. The Board discussed whether and how to change the subsequent measurement of goodwill and made the following decisions.
The Board decided to proceed with the project under a phased approach. The first phase is to simplify the impairment test by removing the requirement to perform a hypothetical purchase price allocation when the carrying value of a reporting unit exceeds its fair value (step 2 of the impairment model in current GAAP). The Board considered but decided not to allow entities an option to perform step 2.
In the second phase of the project, the Board plans to work concurrently with the IASB to address any additional concerns about the subsequent accounting for goodwill.
The Board decided not to allow not-for-profit entities the accounting alternative currently available to private companies (which includes the amortization of goodwill and a one-step, trigger-based impairment test performed at the entity level or reporting unit level) at this time.
Reporting Units with Zero or Negative Carrying Value
The Board decided that if a reporting unit has zero or negative carrying value and it is more likely than not that goodwill is impaired, an entity would be required to write off the full carrying amount of goodwill allocated to that reporting unit.
The Board decided not to make any changes to the presentation requirements in current GAAP.
The Board decided that entities would be required to adopt the simplified impairment test prospectively.
The Board directed the staff to further analyze the qualitative assessment for entities with reporting units with a zero or negative carrying value.