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—identifying performance obligations and licensing. The staff updated the Board on developments related to the license restrictions and the license renewals guidance in the forthcoming Accounting Standards Update, Revenue from Contracts with Customers (Topic 606)—Identifying Performance Obligations and Licensing. The Board made no decisions.
The Board observed that the application guidance on licensing does not override the five-step revenue recognition model in Topic 606. An entity is expected to apply the guidance for identifying performance obligations to determine whether a contract includes one or multiple licenses. The Board also observed that the use and benefit guidance applies to both the initial license of intellectual property and renewals.
Definition of a business (phase 2): clarifying the scope of Subtopic 610-20 and accounting for partial sales of nonfinancial assets. The Board discussed what types of transactions are partial sales, the partial sales model, what should be the scope of Subtopic 610-20, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets, and in substance nonfinancial assets. The Board made the following decisions.
Partial Sales in the Scope of Subtopic 610-20
The Board decided that all transactions in which an entity retains an equity interest in the asset or receives an equity interest in the buyer (including contributions of nonfinancial assets to form joint ventures) would be in the scope of Subtopic 610-20. The guidance in Topic 845, Nonmonetary Transactions, on exchanges of nonfinancial assets for a noncontrolling ownership interest would be eliminated.
Partial Sales Model
The Board decided that the unit of account when transferring a nonfinancial asset and retaining an equity interest in the asset or the buyer would be the entire underlying asset. This reverses the Board’s previous decision that the unit of account is the partial interest transferred.
The Board decided that any retained noncontrolling investment would be recorded at fair value. This reverses the Board’s previous decision that the retained interest would be measured at carryover basis.
Accounting When Control Is Not Transferred
The Board decided that the accounting for a transaction in which control of the nonfinancial asset does not transfer is dependent upon the reason why the asset is not derecognized. If the asset is not derecognized because the seller still consolidates the legal entity (for example, selling a noncontrolling interest in a subsidiary that only holds nonfinancial assets subject to Subtopic 610-20), the transaction would be recorded as an equity transaction consistent with the guidance in Topic 810, Consolidation. If the entity cannot derecognize the nonfinancial asset because the requirements in paragraph 610-20-40-1 have not been met, the entity would record a contract liability as the offset for the consideration received.
The Board decided that the buyer’s assumption of the seller’s liability would be consideration received in exchange for the nonfinancial asset that would be included in the calculation of the gain or loss.
Scope of Subtopic 610-20 and In Substance Nonfinancial Assets
The Board decided that all businesses would be excluded from the scope of Subtopic 610-20.
Groups of Assets or Subsidiaries That Are Not a Business
The Board decided that if a subsidiary or group of assets that is not a business is an in substance nonfinancial asset(s), all of the assets in the group or subsidiary would be subject to Subtopic 610-20. The Board also decided that if Subtopic 610-20 or no other GAAP applies to a group of assets, the entity would separate the assets and apply the applicable GAAP to each asset in a group of assets. The transfer of a subsidiary that is not a business for which the substance of the transaction is not subject to other GAAP (for example, Subtopic 610-20 or Topic 860 on financial assets) would continue to be accounted for in accordance with Topic 810.
In Substance Nonfinancial Assets
The Board decided that when substantially all of the fair value is concentrated in nonfinancial assets, with an exception for cash and cash equivalents, groups of assets or subsidiaries that are not a business would be considered in substance nonfinancial assets.
Accounting for goodwill impairment. The Board discussed the impairment test for reporting units with zero or negative carrying amounts and the disclosure requirements for all entities. The Board made the following decisions.
Reporting Units with Zero or Negative Carrying Amounts
The Board decided that entities should apply the same impairment model for a reporting unit with a zero or negative carrying amount as the model for a reporting unit with a positive carrying amount by comparing the fair value of the reporting unit to its carrying amount. This reverses the Board’s previous decision to require the write-off of goodwill allocated to reporting units with zero or negative carrying amounts.
The Board decided that in addition to the current disclosure requirements, entities with reporting units with zero or negative carrying amounts should disclose the following:
- Identification of reporting units with zero or negative carrying amounts
- The amount of goodwill attributable to each reporting unit with a zero or negative carrying amount.
The Board decided that entities should provide the applicable disclosures described in paragraphs 250-10-50-1(a), which are the nature of and reason for the change in accounting principle, and 250-10-50-2, which states that the required transition disclosures should be included in both interim and annual financial statements in the period of the change.
The Board directed the staff to draft a proposed Accounting Standards Update for vote by written ballot, with a comment period of 60 days.