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.

October 8, 2014 FASB Board Meeting

Clarifying the Definition of a Business. The Board discussed the following issues:
  1. The definition of a business
  2. In substance nonfinancial assets
  3. Partial sales and retained interests
  4. Other asset versus entity differences.
The Board indicated that it plans to address all of the above issues as part of the Clarifying the Definition of a Business project. The Board directed the staff to first focus on clarifying the definition of a business, while continuing to research potential solutions for differences in the recognition and derecognition accounting for assets and businesses. The Board made no technical decisions.


FASB Ratification of EITF Consensuses and Tentative Conclusions.

FASB Ratification of EITF Consensuses

The Board ratified the following consensuses reached at the September 18, 2014 Emerging Issues Task Force meeting. The Board directed the staff to draft final Accounting Standards Updates reflecting those consensuses for a vote by written ballot.

Issue No. 12-F, "Pushdown Accounting"

These amendments will provide an acquired entity and its subsidiaries with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity.

The election to apply pushdown accounting should be determined by an acquired entity for each individual change-in-control event in which an acquirer obtains control of the acquired entity. If pushdown accounting is not applied in the reporting period in which the change-in-control event occurs, an acquired entity will have the option to elect to apply pushdown accounting in a subsequent reporting period to the acquired entity’s most recent change-in-control event as a change in accounting principle. If pushdown accounting is applied to an individual change-in-control event, that election is irrevocable.

The minutes of the September 18, 2014 EITF meeting, which will be posted to the FASB website the week of October 20, 2014, describe the consensus in detail.

Issue No. 13-G, "Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity"

For hybrid financial instruments issued in the form of a share, an entity (an issuer or an investor) should determine the nature of the host contract by considering all stated and implied substantive terms and features of the hybrid financial instrument, weighing each term and feature on the basis of relevant facts and circumstances. That is, an entity should determine the nature of the host contract by considering the economic characteristics and risks of the entire hybrid financial instrument, including the embedded derivative feature that is being evaluated for separate accounting from the host contract.

In evaluating the stated and implied substantive terms and features, the existence or omission of any single term or feature does not necessarily determine the economic characteristics and risks of the host contract. Although an individual term or feature may be weighted more heavily in the evaluation on the basis of facts and circumstances, an entity should use judgment based on an evaluation of all the relevant terms and features. For example, the presence of a fixed-price, noncontingent redemption option held by the investor in a convertible preferred stock contract is not, in and of itself, determinative in the evaluation of whether the nature of the host contract is more akin to a debt instrument or more akin to an equity instrument. Rather, the nature of the host contract depends on the economic characteristics and risks of the entire hybrid financial instrument.

The minutes of the September 18, 2014 EITF meeting, which will be posted to the FASB website the week of October 20, 2014, describe the consensus in detail.

FASB Ratification of EITF Consensuses-for-Exposure

The Board ratified the following consensuses-for-exposure reached at the September 18, 2014 Emerging Issues Task Force meeting. The Board directed the staff to draft proposed Accounting Standards Updates reflecting those consensuses-for-exposure for a vote by written ballot.

Issue No. 14-A, "Effects on Historical Earnings per Unit of Master Limited Partnership Dropdown Transactions"

The proposed amendments specify that, for purposes of calculating historical earnings per unit under the two-class method, the earnings (losses) of a transferred business before the date of a dropdown transaction would be allocated entirely to the general partner interest. In that circumstance, the previously reported earnings per unit of the limited partners (which is typically the earnings per unit measure presented in the financial statements) would not change as a result of the dropdown transaction.
The minutes of the September 18, 2014 EITF meeting, which will be posted to the FASB website the week of October 20, 2014, describe the consensus-for-exposure in detail.

Issue No. 14-B, "Fair Value Hierarchy Levels for Certain Investments Measured at Net Asset Value"

Current GAAP requires that investments for which fair value is measured at net asset value (or its equivalent) using the practical expedient in Topic 820 be categorized within the fair value hierarchy using criteria that differ from the criteria used to categorize other fair value measurements within the hierarchy.

Rather than utilizing criteria that differ from the criteria for categorizing other fair value measurements in the fair value hierarchy, the proposed amendments would no longer require investments for which fair value is measured at net asset value (or its equivalent) using the practical expedient to be categorized in the fair value hierarchy.
A reporting entity would continue to disclose information on investments for which fair value is measured at net asset value (or its equivalent) using the practical expedient to help users understand the nature and risks of the investments.

The minutes of the September 18, 2014 EITF meeting, which will be posted to the FASB website the week of October 20, 2014, describe the consensus-for-exposure in detail.


Agenda Decision: Share-based Payment Accounting Improvements. The Board added a project to improve the accounting for share-based payment to employees in the following areas:
  1. Minimum statutory withholding requirements
  2. Presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet minimum statutory withholding requirements
  3. Accounting for forfeitures
  4. Accounting for income taxes upon vesting or settlement of awards
  5. Presentation of excess tax benefits on the statement of cash flows.
The Board directed the staff to perform further research in a few additional areas that could reduce the cost of application for private companies. The potential improvements discussed at the meeting include practical expedients for private companies related to intrinsic value, expected term, and formula value plans. The Board also asked the staff to perform research and analysis relating to the impact of certain features, such as repurchase features, on the classification of awards as a liability or equity. The Board directed the staff to obtain feedback on the research from the Private Company Council members that serve as advisors to the Board on the project.

Minimum Statutory Withholding Requirements

The Board decided to modify the current exception to liability classification when an employer uses a net-settlement feature to withhold shares to meet an employee’s minimum statutory withholding requirements. Specifically, the partial cash settlement of an award for tax withholding purposes would not result, by itself, in liability classification of the award provided the amount withheld does not exceed the highest applicable marginal tax rate in the applicable jurisdictions.

Presentation of Employee Taxes Paid on the Statement of Cash Flows When an Employer Withholds Shares to Meet Minimum Statutory Withholding Requirements

The Board decided that an employer should classify the cash paid when directly withholding shares to meet minimum statutory withholding requirements as a financing activity on the statement of cash flows.

Accounting for Forfeitures

The Board decided to modify the requirement to estimate the number of awards that will ultimately vest when determining the amount of compensation cost to recognize over the vesting period. The Board decided to allow an entity an accounting policy election either to estimate the number of forfeitures (awards that will not vest because employees do not provide the necessary service to earn the awards) or to recognize forfeitures as they occur.

Accounting for Income Taxes upon Vesting or Settlement of Awards

The Board decided to propose that all excess tax benefits and tax deficiencies be recognized within the income statement. The Board also decided to remove the requirement to delay recognition of an excess tax benefit until the tax benefit is realized.

Presentation of Excess Tax Benefits on the Statement of Cash Flows

The Board decided to remove the requirement that employers present excess tax benefits as a cash inflow from financing activities and a cash outflow from operating activities.

Nonemployee Share-Based Payment Accounting Improvements

The Board decided to add a separate research project to its agenda to further research potential improvements to the accounting for share-based payment awards to nonemployees. The staff’s research will include the scope of the nonemployee guidance and the accounting for awards with unresolved performance conditions.


Disclosures by Business Entities about Government Assistance. The Board discussed the following four scope-related issues:
  1. Principle to describe government assistance transactions that would be within the scope
  2. Explicit scope exceptions that may be needed in addition to the principle
  3. Assistance from foreign governments
  4. The entities to which the disclosure requirements would apply.
The Board discussed that a principle should be used to describe the scope of the disclosures that would focus on arrangements that (1) are the result of an agreement and (2) the entity does not provide equal value in return for the assistance received. The Board directed the staff to perform additional research to refine the elements of the proposed principle such as an agreement and value.

The Board also decided that the disclosures would be required only by business entities and would include information about assistance from both domestic and foreign governments.


Financial Statements of Not-for-Profit Entities. The staff provided the Board with a summary of the tentative decisions reached to date and its analysis of the potential benefits, costs, and complexities of the proposed changes, noting that Board members and members of FASB’s Not-for-Profit Advisory Committee (NAC) had discussed that summary at the September 4-5, 2014 NAC meeting. The staff noted that although NAC members generally supported the proposed changes, the members raised significant concerns about the cost and complexity of proposed changes in two areas: (1) capital-like transactions and (2) board designations, appropriations, and similar transfers (collectively referred to as transfers). The NAC encouraged the Board to consider whether one or more cost-effective alternatives could be implemented without a significant reduction in the benefits of the information.

Capital-Like Transactions

The Board revised its previous decisions on capital-like transactions. The Board decided to require the following treatment of capital-like transactions:
  1. An NFP would report gifts of long-lived assets without donor restrictions as operating revenue. If the NFP places the asset in service (instead of selling it), the NFP would also report a transfer out of operations for the entire amount of the gifted long-lived asset. Unlike the Board’s previous decision, there would be no transfers back into operations in subsequent periods.
  2. Gifts of cash that a donor has restricted for the acquisition or construction of long-lived assets would initially be reported as revenues that increase net assets with donor restrictions, which is reported outside of operations. When the asset is placed in service, the release of the donor restriction would be reported as an increase in net assets without donor restrictions within operating activity and a decrease in net assets with donor restrictions. That amount would also be reported as a transfer from operations to nonoperating activities, which is consistent with the treatment of gifts of long-lived assets, and there would be no transfers back into operations in subsequent periods.
Board Designations, Appropriations, and Similar Transfers

To address concerns about the degree of flexibility, the Board decided to require that NFPs present (1) all transfers in a separate, discrete section and (2) a subtotal of operating revenues and expenses before such transfers, which is in addition to the previous decision to require a subtotal after such transfers. At a minimum, an NFP must present the aggregate of transfers out of operating activities separate from the aggregate of transfers into operating activities. Unless the NFP chooses to display all transfers as discrete line items on the face of the statement of activities, the NFP would need to provide details for aggregated transfers in a note. All NFPs would be required to describe qualitatively the purpose, amounts, and types of transfers (for example, those done because of standing board policies, as one-time decisions, or for other reasons).

Next Steps

Board members were asked whether they had any other concerns about the benefits, costs, or complexities of other decisions that require further research by the staff. None were noted.

The Board directed the staff to proceed to drafting a proposed Update that will be subjected to an external review. The Board will then consider any further feedback, the proposed transition provisions, and any additional sweep issues that arise in drafting. The Board also will consider the overall benefits, costs, and complexities and decide whether to issue the proposed Update for public comment and, if so, determine the length of the comment period.