Emerging Issues Task Force (EITF)

Description and Status of Current Issues

The following Issues described below are currently on the Task Force's list of Open Issues or have been resolved over the past year.

[09-E] [09-D] [09-B] [09-4] [09-3] [09-2] [09-1] [08-10] [08-9] [08-8] [08-7] [08-6]
[08-5] [08-1] [03-15] 

Downloading Documents


Issue No. 09-E, "Accounting for Stock Dividends, Including Distributions to Shareholders with Components of Stock and Cash." FASB Statement No. 128, Earnings per Share, establishes standards for computing and presenting earnings per share (EPS) and applies to entities with publicly held common stock or potential common stock. Paragraph 54, states that if the number of common shares outstanding increases as a result of a stock dividend, the computations of basic and diluted EPS should be adjusted retroactively for all periods presented to reflect that change in capital structure. AICPA Accounting Research Bulletin No. 43, Restatement and Revision of Accounting Research Bulletins, Chapter 7B, "Stock Dividends and Stock Split-ups," defines a stock dividend and states that a stock dividend does not "give rise to any change whatsoever in either the corporation's assets or its respective shareholders' proportionate interests therein."
Real Estate Investment Trusts (REITs) are required to distribute 90 percent of their taxable income in accordance with tax regulations. Historically, some REITs have issued "special dividends" that are above a REIT's recurring quarterly dividend, in periods of large, non-recurring earnings. In many cases the special dividend is in the form of cash and stock, subject to approval by the Internal Revenue Service (IRS) by means of a private letter ruling. Under these distributions, shareholders would have the ability to elect to receive either cash or stock, subject to a minimum amount of the dividend available to be paid in cash.
IRS Revenue Procedure 2008-68 allows REITs to make distributions in the form of cash and stock to satisfy annual distribution requirements without a private-letter ruling. For taxable dividend treatment, the distribution must be offered in cash or stock of equivalent value; be publicly traded on an established securities market; not be less than 10 percent of the total amount of cash available; be declared for a taxable year ending on or before December 31, 2009.
The Issues are whether the stock portion of a distribution to shareholders that contains components of cash and stock and allows shareholders to select their preferred form of the distribution should be accounted for as a stock dividend for purposes of applying the provisions of Statement 128, paragraph 54. If the stock portion of the distribution is considered a stock dividend, the issue is whether an entity should estimate the number of shares to be issued if it issues its financial statements prior to the payment date for purposes of applying the provisions of Statement 128, paragraph 54.
Status: The Task Force reached a consensus-for-exposure that the stock portion of a distribution to shareholders that contains components of cash and stock and allows shareholders to select their preferred form of the distribution (with a limit on the minimum amount of cash that will be distributed in total) should be considered a stock dividend for purposes of applying the EPS provisions of Topic 260. Retrospective application of EPS would be required, regardless of whether the actual stock distribution is proportionate. The Task Force also reached a consensus-for-exposure that only the minimum portion of the distribution that will be issued in shares should be accounted for as a stock dividend.
The Task Force reached a consensus-for-exposure that an entity should reflect a stock dividend in EPS in its financial statements on the latter of the ex-dividend date or the date the number of shares to be issued is known. The Task Force decided that this guidance should apply to all stock dividends.
The Task Force also reached a consensus-for-exposure that for the stock portion of a distribution to shareholders that has not been retroactively reflected in EPS for all periods presented, an entity shall not include the shares to be distributed in the computation of diluted EPS.
The Task Force reached a consensus-for-exposure that if EPS has not yet been adjusted retroactively for all periods presented to reflect a stock dividend, an entity shall disclose that EPS for all periods presented is subject to change upon settlement of the stock dividend. An entity shall also disclose the number of shares that would be issuable if the settlement of the stock dividend occurred on the reporting date.
The Task Force reached a consensus-for-exposure that the amendments in this proposed Update would be effective for interim and annual periods ending on or after December, 15, 2009, and would be applied on a retrospective basis.
At its September 23, 2009 meeting, the Board ratified the consensus-for-exposure reached by the Task Force in this Issue. The Board decided on an exposure period for the proposed Accounting Standards Update (Topic 505 and Topic 260) that will end on October 26, 2009. This Issue will be discussed further at a future meeting.
Dates discussed: September 9–10, 2009


Issue No. 09-D, "Application of the AICPA Audit and Accounting Guide, Investment Companies, by Real Estate Investment Companies." The AICPA Real Estate Funds Project task force worked with AcSEC on a project intended to help industry practitioners understand how real estate funds should apply AICPA Audit and Accounting Guide, Investment Companies. While many real estate funds concluded that their funds were within the scope of the Guide and were applying AICPA Statement of Position 07-1, Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies, the subsequent deferral of the effective date of SOP 07-1 by FSP SOP 07-1-1, Effective Date of AICPA Statement of Position 07-1, did little to reduce diversity in practice for those funds following the Guide. Some entities carry real estate investments at fair value because (a) they are investment companies that are required to apply the Guide, (b) they are wholly-owned by a pension plan that is required to carry investments at fair value, and (c) they believe prevalent industry accounting practices authorize them to carry such non-financial assets at fair value without regard to investment company attributes or pension plan ownership. The issue is whether an entity that is not in the scope of the Guide can carry real estate and other non-financial investments at fair value through analogy to the Guide or on the basis of industry practice. Also, when carrying real estate investments at fair value, the issues are how an entity should report net investment income and how real estate properties that are owned directly (fee simple) by the entity should be reported.
Status: To be discussed at a future meeting.


Issue No. 09-B, "Consideration of an Insurer's Accounting for Majority Owned Investments When the Ownership Is through a Separate Account." Life insurance entities provide certain products that not only cover mortality but also provide an investment return. The contract holders direct the allocation of their deposits to various investment options and the insurance entity receives an asset management fee. To facilitate this structure, a "separate account" will be established by the insurance entity. A separate account legally isolates the assets of the contract holder from the assets of the insurance entity. Among other things, this structure protects the contract holders with separate accounts from the general creditors of the insurance entity should the insurance entity enter bankruptcy. While the insurance entity does not make allocation decisions, the insurance entity does hold title to the investments in a separate account and generally has certain rights associated with the investments. Accounting guidance for separate accounts is provided in AICPA Statement of Position 03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts. SOP 03-1 requires that separate account assets and liabilities be included in the financial statements of the insurance entity that owns the assets and is contractually obligated to pay the liabilities. The issue is how an insurer should account for a majority interest in a mutual fund when all or a portion of that interest includes separate account assets representing contract holder funds.
Status: The Task Force reached a consensus-for-exposure that an insurer would not be required to consolidate a mutual fund in situations in which that insurer holds a majority-owned investment in the mutual fund through its separate account pursuant to paragraph 810-10-25-15. The insurer would also not be required to consolidate a mutual fund in which it holds a majority-owned investment through a combination of interests held by its separate and general accounts, but neither the separate account nor the general account individually has a majority interest.
The Task Force reached a consensus-for-exposure that this Issue shall be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2010. Early adoption would not be permitted. The consensus requires retrospective application to all prior periods upon the date of adoption.
The Task Force reached a consensus-for-exposure that the transition disclosures in paragraphs 250-10-50-1 through 50-3 would be required.
At its September 23, 2009 meeting, the Board ratified the consensus-for-exposure reached by the Task Force in this Issue. The Board decided on an exposure period for the proposed Accounting Standards Update (Topic 944) that will end on October 26, 2009. This Issue will be discussed further at a future meeting.
Dates discussed: September 9–10, 2009


Issue No. 09-4, "Seller Accounting for Contingent Consideration." FASB Statement No. 141 (revised 2004), Business Combinations, requires that a buyer recognize the acquisition-date fair value of contingent consideration, which it also defines, as part of the consideration transferred to the seller in exchange for the acquiree. It requires a buyer to remeasure contingent consideration classified as an asset or liability to its fair value through current period earnings (or other comprehensive income if the arrangement is a hedging instrument) each reporting period.
While Statement 141(R) does not provide guidance on seller accounting for a business combination, FASB Statement No. 160, Noncontrolling Interest in Consolidated Financial Statements, issued concurrently, amends the guidance in AICPA Accounting Research Bulletin No. 51, Consolidated Financial Statements, to provide the seller's accounting for the deconsolidation of a subsidiary. In the event that a parent ceases to have a controlling financial interest in a subsidiary (including the sale of a subsidiary) and deconsolidation is required, paragraph 36 of ARB 51 requires that the gain or loss recognized upon deconsolidation of a subsidiary be measured as the difference between (a) the fair value of any consideration received, (b) the fair value of any retained noncontrolling investment in the former subsidiary at the date the subsidiary is deconsolidated, (c) the carrying amount of any noncontrolling interest in the former subsidiary at the date the subsidiary is deconsolidated, and (d) the carrying amount of the former subsidiary's assets and liabilities. Statement 160 requires initial measurement at fair value of contingent consideration received, however, it does not address subsequent measurement requirements for the seller's right to additional consideration received in the deconsolidation of a subsidiary.
The issue is whether the seller should subsequently remeasure contingent consideration that is not accounted for as a derivative, at fair value through current period earnings. And what the required disclosures of seller contingent consideration should be.
Status: At the September 9–10, 2009 meeting, some Task Force members were supportive of recognizing contingent consideration at fair value upon initial measurement, while others believed the contingent consideration should be accounted for as a gain contingency under Topic 450. Some Task Force members were supportive of recognizing contingent consideration at fair value in subsequent periods. Those Task Force members observed that this would align the accounting for contingent consideration between a buyer and a seller in a business combination. Other Task Force members were not supportive of recognizing contingent consideration at fair value in subsequent periods. Some of those Task Force members were concerned that a seller may not have sufficient information available to estimate the fair value of the contingent consideration arrangement. The Task Force was unable to reach any conclusion on this Issue. No further EITF discussion is planned.
Dates discussed: June 18, 2009; September 9-10, 2009


Issue No. 09-3, "Certain Revenue Arrangements That Include Software Elements." At the November 13, 2008 EITF meeting, the Task Force discussed two comment letters (from entities that sell software-enabled devices accounted for under AICPA Statement of Position 97-2, Software Revenue Recognition) that recommended that the scope of EITF Issue No. 08-1, "Revenue Arrangements with Multiple Deliverables," be expanded to include transactions within the scope of SOP 97-2. The Task Force also considered the input received by the FASB staff from users of financial statements of software entities. Those users stated that they believed that contracts accounted for under SOP 97-2 should not require or allow deliverables to be accounted for as separate units of accounting based on an estimate of the selling price of undelivered elements when the company did not have vendor-specific objective evidence. The Task Force considered whether to (a) expand the scope of Issue 08-1 to include transactions accounted for under SOP 97-2, (b) expand the scope of Issue 08-1 to specifically include revenue related to software-enabled devices, or (c) not expand the scope of Issue 08-1 but recommend that a separate project be added to the EITF agenda to evaluate the scope of SOP 97-2 and the accounting for revenue arrangements with multiple deliverables within the scope of SOP 97-2. The Task Force reached a consensus-for-exposure that the scope of Issue 08-1 should be the same as the scope of Issue 00-21 and that the scope not be expanded to include deliverables within the scope of SOP 97-2. The Task Force also recommended to the FASB Chairman that a separate Issue be added to the EITF agenda to consider changes to the accounting for multiple element arrangements under SOP 97-2. The FASB Chairman was present at the meeting and after considering the input from the Task Force and Board members, decided to add the project to the EITF agenda. The Task Force noted that it would be preferable if any amendments arising from future Task Force deliberations on SOP 97-2 were to have an effective date that is consistent with Issue 08-1.
Status: The Task Force reached a consensus to focus the scope of this Issue on determining which arrangements are within the scope of the software revenue recognition guidance and not to pursue a broader change to the allocation and measurement guidance for all software transactions. The Task Force reached a consensus that tangible products containing software components and non-software components that function together to deliver the product's essential functionality are not within the scope of software revenue recognition guidance.
The Task Force reached a consensus to modify paragraph 5(a) of the consensus-for-exposure so as to not create a brightline by clarifying that the assumption was meant to be applied as a rebuttable presumption rather than an absolute.
The Task Force reached a consensus to include an additional factor to consider in applying the scope exception and to modify Example 7 in the consensus-for-exposure in order to clarify that the hardware components of a tangible product must substantively contribute to the functionality of the tangible product for the scope exception to apply.
The Task Force affirmed as a consensus the consensus-for-exposure concerning the ongoing disclosure requirements that were included in the draft abstract consistent with Issue 08-1.
The Task Force reached a consensus that this Issue shall be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with earlier application permitted. If a vendor elects earlier application and the first reporting period of adoption is not the first reporting period in the vendor’s fiscal year, the guidance in this Issue must be applied through retrospective application from the beginning of the vendor’s fiscal year and the vendor must disclose the effect of the change to those previously reported periods.
The Task Force reached a consensus to provide entities with the option of applying this Issue on a retrospective basis in accordance with the guidance in Section 250-10 on the presentation of accounting changes and error corrections.
The Task Force reached a consensus on the transition disclosure requirements that were affirmed as a consensus under Issue 08-1 at the September 9–10, 2009 EITF meeting.
At its September 23, 2009 meeting, the Board ratified the consensus reached by the Task Force in this Issue. Accounting Standards Update 2009-14 (Topic 985) was issued to update the FASB Accounting Standards CodificationTM. No further EITF discussion is planned.
Dates discussed: March 19, 2009; June 18, 2009; September 9-10, 2009


Issue No. 09-2, "Research and Development Assets Acquired and Contingent Consideration Issued In an Asset Acquisition." At the January 21, 2009 Board meeting, the FASB chairman announced that the FASB project on this topic was being removed from the FASB agenda and added to the EITF agenda. This Issue will examine the inconsistencies that exist between the accounting for research and development assets acquired in a business combination and the accounting for those acquired in other types of transactions (FASB Statements No. 141(R), Business Combinations, and No. 2, Accounting for Research and Development Costs).
Status: The Task Force affirmed as a consensus-for-exposure its tentative conclusion that all tangible and intangible research and development assets acquired in an asset acquisition shall be capitalized regardless of whether those assets have a future alternative use. The Task Force reached a consensus-for-exposure that contingent consideration in an asset acquisition shall be accounted for in accordance with existing U.S. GAAP.
The Task Force reached a consensus-for-exposure that an entity is required to differentiate between contingent consideration that relates to the acquisition of the assets and contingent consideration that relates to the performance of future services from the seller. That determination would be required when the assets are acquired. The Task Force reached a consensus-for-exposure not to provide factors for assisting in making the determination between contingent consideration that relates to the acquisition of assets and the performance of future services, but decided to request input from constituents as to whether additional guidance is necessary.
The Task Force reached a consensus-for-exposure that an entity should disclose how contingent consideration in an asset acquisition will be accounted for when the contingent payment is made. That disclosure is in addition to disclosures required by other specific applicable U.S. GAAP, which may include the nature of the contingent payment arrangement and an estimate of the possible contingent consideration or range of contingent consideration or a statement that such an estimate cannot be made.
The Task Force reached a consensus-for-exposure that this Issue shall be effective in fiscal years beginning on or after December 15, 2009. This Issue shall be applied prospectively. Earlier application is not permitted.
At its September 23, 2009 meeting, the Board ratified the consensus-for-exposure reached by the Task Force in this Issue. The Board decided on an exposure period for the proposed Accounting Standards Update (Topic 730) that will end on October 26, 2009. This Issue will be discussed further at a future meeting.
Dates discussed: March 19, 2009; June 18, 2009; September 9-10, 2009


Issue No. 09-1, "Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance." For a reduction in the interest rate or an increase in proceeds received from the issuance of a convertible debt instrument, and due to a lack of liquidity or extensive open short positions in their shares, corporate entities may enter into share-lending arrangements that are executed in connection with a convertible debt offering. The share-lending arrangement is an agreement between the corporate entity (share lender) and an investment bank (share borrower). It enables the investment bank to use the loaned shares to enter into equity derivative contracts (for example, options, forwards, and total return swaps) with investors. The equity derivative contracts allow investors to hedge the long position in the corporate entity’s stock that they hold via the embedded conversion option in the convertible debt instrument. The investment bank enters into the share-lending arrangement in order to hedge its own market risk associated with the long position resulting from the equity derivative contracts entered into with investors.
The terms of the share lending arrangement require the corporate entity to issue shares to the investment bank in exchange for a nominal loan processing fee. Upon maturity or conversion of the convertible debt, the investment bank is required to physically return the loaned shares to the corporate entity for no additional consideration. The terms stipulate that over the period the shares are loaned, the investment bank is required to (a) reimburse the corporate entity for any dividends paid on the loaned shares, even if the investment bank has sold the Loaned Shares into the market, and (b) not vote on any matters submitted to a vote of the corporate entity’s shareholders. A collateral provision exists in some arrangements. Finally, in the event the investment bank defaults in returning the Loaned Shares, the corporate entity is entitled to a cash payment equal to the fair value of the loaned shares.
U.S. GAAP currently does not specifically address share-lending arrangements by the issuer of the underlying shares. The issue is how the corporate entity should (a) account for a share-lending arrangement that is entered into in contemplation of a convertible debt offering and (b) calculate earnings per share.
Status: At the June 18, 2009 EITF meeting, the Task Force reached a consensus that the scope of this Issue should be amended to clarify that this Issue only applies to share-lending arrangements that are classified as equity in the financial statements of the share lender. Arrangements that are classified as an asset or liability are required to be accounted for under other applicable guidance. The Task Force reached a consensus that the reference to "debt issuance cost" in the draft abstract be amended to "issuance cost." The Task Force reached a consensus that the share lender is required to recognize an expense in its financial statements when counterparty default is probable. The share lender is required to recognize an expense equal to the then fair value of the unreturned shares, net of the fair value of probable recoveries. The share lender is required to remeasure the fair value of the unreturned shares, net of the fair value of probable recoveries, each reporting period through earnings until the arrangement consideration payable by the counterparty becomes fixed. Subsequent changes in the amount of probable recoveries should also be recognized in earnings. The Task Force clarified that the loaned shares should be excluded from basic and diluted earnings per share until default of the share-lending arrangement occurs and then be included in the basic and diluted earnings-per-share calculations. The Task Force also clarified that the two-class method is not required to be applied to the shares subject to the share-lending arrangement.
The Task Force reached a consensus that the disclosures are required for both annual and interim period financial statements and should be amended to include (a) any amounts of dividends paid related to the loaned shares that will not be reimbursed, (b) in the period in which the entity concludes that it is probable that the counterparty to its share-lending arrangement will default, the amount of expense recorded in the statement of earnings related to the default, (c) in any subsequent period, any material subsequent changes in the amount of expense as a result of changes in the fair value of the entity's shares or the probable recoveries, and (d) in any period in which it is probable that the counterparty to a share-lending arrangement will default but prior to default occurring, the number of additional shares that would have been included in the basic and diluted earnings-per-share calculation if default were to occur.
The Task Force reached a consensus to amend the effective date of this Issue making it effective for fiscal years beginning on or after December 15, 2009, and interim periods within those fiscal years for arrangements outstanding as of the beginning of those fiscal years. This Issue requires retrospective application for all arrangements outstanding as of the beginning of fiscal years beginning on or after December 15, 2009. The Task Force also reached a consensus that this Issue shall be effective for interim or annual periods beginning on or after June 15, 2009, for share-lending arrangements entered into in those periods. The Task Force observed that arrangements that had been terminated as a result of counterparty default prior to the effective date of this Issue but for which the entity had not reached a final settlement as of the effective date would be within the scope of this Issue.
At the July 1, 2009 meeting, the Board ratified the consensus reached by the Task Force in this Issue. No further EITF discussion is planned.
Dates discussed: March 19, 2009; June 18, 2009


Issue No. 08-10, "Selected Statement 160 Implementation Questions." FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements, establishes the accounting for noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, and applies to all entities that prepare consolidated financial statements except not-for-profit organizations. Generally, Statement 160 will require that an entity treat its sale of a partial interest in a subsidiary, when the entity maintains control of the subsidiary, as an equity transaction in which no gain or loss is recognized. Conversely, if an entity sells an interest in a subsidiary that results in the entity losing control of that subsidiary, the entire subsidiary is deconsolidated and a gain or loss is recorded (measured as the difference between (a) the fair value of any consideration received, plus any retained interest in the former subsidiary, plus the carrying amount of any noncontrolling interest in the former subsidiary, and (b) the carrying amount of the former subsidiary's assets and liabilities). The result is that the balance sheet reflects the retained interest at its fair value on the deconsolidation date.
FASB Statement No. 66, Accounting for Sales of Real Estate, establishes criteria governing the method and timing of profit recognition on all real estate sales transactions, including partial real estate sales. Paragraph 101 of Statement 66 notes that sales of corporate stock of an enterprise with substantial real estate holdings and sales of partnership interests (if the sales are in substance real estate), are examples of real estate sales transactions. Under Statement 66, the timing and amount of the gain on a partial sale depends (in part) on the completion of the sale, including (a) collectibility of the sales price, (b) whether the seller has an obligation to support the operations of the property greater than its proportionate interest, and (c) the proportionate interest sold. Assuming the criteria are met, profit is recognized on the sale date and is equal to the difference between the sales price and the proportionate cost of the partial interest sold. Additionally, the buyer must be independent of the seller.
Statement 160 does not contain an exception for noncontrolling interests in a subsidiary that is in substance real estate nor does it amend Statement 66. Consequently, it has been noted that there will be partial sales of subsidiaries that will fall within the scope of both Statements. Application of the Statements appears to result in different bases for the retained interest, different timing for recognition of profit, and, at times, different amounts of profit. The issues are, after the effective date of Statement 160, how an entity should account for partial sales and purchases of interests in a subsidiary that is in substance real estate, how a gain should be recognized from a transfer of interests in a subsidiary to an equity method investee, and whether gain recognition is required upon a transfer of interests at the formation of a joint venture under certain circumstances.
Status: The Board ratified the consensuses-for-exposure in this Issue at its November 24, 2008 meeting, and a draft abstract was posted to the FASB website for a public comment period that ended December 26, 2008.
At the January 15, 2009 meeting, the Task Force discussed comments received on the draft abstract and proposed revisions. The Task Force discussed whether the scope of this Issue should be limited to transfers of interests in consolidated subsidiaries (that is, based on legal form) consistent with Statement 160, whether the scope should be broadened to reflect the substance of the transfer (that is, a business or a substantive entity), or whether the scope of Statement 160 should be amended (that is, if revisions are made to broaden the scope of this Issue). The Task Force was not asked to reach a conclusion on these issues at this time. At the March 19, 2009 EITF meeting, the Task Force was informed the FASB has added a project to its agenda regarding the scope of Statement 160 and that an FASB decision may impact the consensuses-for-exposure reached on this Issue. Therefore, a decision to finalize this Issue will be deferred until the FASB has completed its deliberations. This Issue will be discussed further at a future meeting.
Dates discussed: November 13, 2008, January 15, 2009


Issue No. 08-9, "Milestone Method of Revenue Recognition" (previously discussed in conjunction with Issue No. 08-1). Some revenue arrangements provide for multiple payment streams for a single deliverable or a single unit of accounting. If delivery of a single unit of accounting spans multiple accounting periods, the arrangement consideration attributable to that unit of accounting needs to be allocated to those periods. The ultimate objective is to determine when the arrangement consideration should be recognized as revenue.
Revenue recognition for a single unit of accounting depends on the nature of the deliverable(s) composing that unit of accounting, the corresponding revenue recognition criteria, and whether those criteria have been met. Concepts Statement 5, paragraph 83, states that “recognition involves consideration of two factors, (a) being realized or realizable and (b) being earned, with sometimes one and sometimes the other being the more important consideration.” Determining whether revenue is considered both realized or realizable and earned depends on (a) whether delivery or performance has occurred and (b) whether the arrangement consideration is fixed or determinable. Delivery or performance has occurred when the seller fulfills its obligations and the customer has realized the value of the deliverable. Because the delivery may span multiple accounting periods, various accounting methods have been adopted to address when delivery has occurred and when revenue should be recognized.
The proportional performance method is generally accepted as one way of recognizing revenue in a pattern that reflects a vendor's performance of its obligation under the contractual arrangement. In the application of the proportional performance method, the fixed or determinable fees associated with an arrangement generally do not include consideration tied to the achievement of milestones. However, once achieved, the additional consideration becomes fixed or determinable and is then recognizable. One method developed to address the revenue recognition for the additional consideration is the milestone method. Under the milestone method, the additional consideration earned from achievement of the milestone is viewed as being indicative of the value provided to the customer through either (a) the efforts performed by the vendor or (b) a specific outcome resulting from the vendor's performance to achieve that specific milestone. That is, the milestone method is an approach to the application of the proportional performance method of revenue recognition. Under the milestone method an entity recognizes contingent arrangement consideration earned from the achievement of a milestone in its entirety in the period in which the milestone is achieved. The question is whether the use of the milestone method allows entities to ignore their method of calculating proportional performance by allowing the entity to recognize the full milestone payment without attributing it proportionally to the entire deliverable or components of the unit of accounting.
The issues are to define a milestone and to determine whether an entity may recognize consideration earned from the achievement of a milestone in the period in which the milestone is achieved. This Issue applies to revenue arrangements under which a vendor satisfies its performance obligations to a customer over a period of time, when the deliverable or unit of accounting is not within the scope of other authoritative literature, and when the arrangement consideration is contingent upon the achievement of a milestone.
Status: At the September 9–10, 2009 EITF meeting, the Task Force discussed the analysis of the types of transactions that may be within the scope of this Issue. Some Task Force members questioned whether the scope of this Issue should be revised to only apply to research and development arrangements. Other Task Force members observed that limiting the scope of this Issue to research and development arrangements would not be preferable as it would perpetuate industry specific guidance rather than provide broad guidance for contingent payments. Other Task Force members questioned whether to modify the definition of a milestone such that substantive uncertainty would be a factor to consider as opposed to a requirement, based on facts and circumstances. The Task Force requested that the FASB staff perform additional analysis to determine what the scope of this Issue should be. This Issue will be discussed further at a future meeting.
Dates Discussed: November 13, 2008; March 19, 2009; June 18, 2009; September 9-10, 2009


Issue No. 08-8, "Accounting for an Instrument (or an Embedded Feature) with a Settlement Amount That Is Based on the Stock of an Entity's Consolidated Subsidiary." FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements, which amends AICPA ARB No. 51, Consolidated Financial Statements, requires that a noncontrolling interest, the ownership interest in a subsidiary held by parties other than the parent, be classified within equity, not as a liability. EITF Issue No. 00-6, "Accounting for Freestanding Derivative Financial Instruments Indexed to, and Potentially Settled in, the Stock of a Consolidated Subsidiary," addresses the accounting for freestanding derivative instruments indexed to the stock of a consolidated subsidiary and was not amended by Statement 160; however, in paragraph B35, the Board acknowledged an inconsistency between Statement 160 and Issue 00-6 in that the consensus states that "stock of a subsidiary is not considered equity of the parent (reporting entity)." Also, Issue 00-6 states that a freestanding contract indexed to the stock of a consolidated subsidiary does not qualify for the scope exception in paragraph 11(a) of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. Paragraph 11(a) specifies that a contract that would otherwise meet the definition of a derivative, issued or held by the reporting entity and both (a) indexed to that entity's own stock and (b) classified in stockholders' equity in that entity's statement of financial position shall not be considered a derivative financial instrument. If a freestanding financial instrument (for example, a stock purchase warrant) meets that scope exception, it is classified as an equity instrument and is not accounted for as a derivative instrument. As a result, Issue 00-6 precludes equity classification and typically results in derivative accounting for instruments indexed to and potentially settled in the stock of a consolidated subsidiary. The issue is whether Issue 00-6 should be amended to treat stock issued by a subsidiary as being equivalent to stock issued by the parent.
Status: The Board ratified the consensuses-for-exposure in this Issue at its September 24, 2008 meeting. A draft abstract was posted to the FASB website on September 26, 2008. Comments on the draft abstract are due by October 22, 2008.
At the November 13, 2008 meeting, the Task Force affirmed the consensuses-for-exposure reached at the September 10, 2008 EITF meeting as a consensus with certain revisions. The Task Force also decided that a substantive entity will not be defined within the scope of this Issue and that the recognition guidance in this Issue will not be further clarified. The Task Force also decided that guidance will be added to further clarify the scope of this Issue relating to the application of FASB Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.
This Issue would be effective for fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years. Earlier application would not be permitted. The consensus would be applied to outstanding instruments as of the beginning of the fiscal year in which this Issue is initially applied. The fair value of an outstanding contract that was previously classified as a derivative asset or liability would become its net carrying amount at that date. The net carrying amount would be reclassified to noncontrolling interest. Gains or losses recorded during the period that the contract was classified as a derivative asset or liability would not be reversed.
Dates discussed: September 10, 2008, November 13, 2008


Issue No. 08-7, "Accounting for Defensive Intangible Assets." Under FASB Statements No. 141(revised 2007), Business Combinations, and No. 157, Fair Value Measurements, acquirers will generally assign a greater value to defensive assets than typically assigned under Statement 141. Defensive assets are assets acquired in a business combination that the acquirer (a) does not intend to use or (b) intends to use in a way other than the assets’ highest and best use as determined by an evaluation of market participant assumptions. Defensive assets also are referred to as “locked-up assets” because while the asset is not being actively used, it is likely contributing to an increase in the value of other assets owned by the acquiring entity. Questions have been raised about how a defensive asset should be accounted for subsequent to acquisition and whether a defensive asset should be considered a finite-lived asset or an indefinite-lived asset. This issue addresses the accounting for defensive intangible assets subsequent to initial recognition.
Status: The Board ratified the consensuses-for-exposure in this Issue at its September 24, 2008 meeting. A draft abstract was posted to the FASB website on September 26, 2008. Comments on the draft abstract are due by October 22, 2008.
At the November 13, 2008 meeting, the Task Force affirmed the consensuses-for-exposure reached at the September 10, 2008 EITF meeting as a consensus with certain revisions. The Task Force also decided that all research and development intangible assets should be excluded from the scope of this Issue and should instead be accounted for in accordance with paragraph 16 of FASB Statement No. 142, Goodwill and Other Intangible Assets. The Task Force decided that a paragraph will be added to clarify that because of a lack of market exposure or because of competitive or other factors, it would be rare for a defensive asset to have an indefinite life, and that if an acquired intangible asset meets the definition of a defensive intangible asset it could not be considered immediately abandoned.
This Issue would be applied prospectively for intangible assets acquired on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, in order to coincide with the effective date of FASB Statement No. 141 (revised 2007), Business Combinations. Earlier application would not be permitted.
Dates discussed: September 10, 2008, November 13, 2008


Issue No. 08-6, "Accounting for Equity Method Investments Considerations." Prior to the issuances of FASB Statements No. 141 (revised 2007), Business Combinations, and No. 160, Noncontrolling Interests in Consolidated Financial Statements, acquisitions of additional ownership interests in investments accounted for under the equity method would follow the same accounting principles of a consolidated subsidiary as indicated in APB Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock. Statements 141(R) and 160 made certain amendments to Opinion 18 including the elimination of the phrase "to account for the investee as if the investee were a consolidated subsidiary." However, certain paragraphs were not amended and specifically state that the accounting principles should be followed as if the investee were a consolidated subsidiary. Under the equity method, an investor initially records an investment in the stock of an investee at cost, and adjusts the carrying amount of the investment to recognize the investor's share of the earnings or losses of the investee after the date of acquisition. Further, an investment in common stock accounted for under the equity method is generally presented as an asset on one line on the balance sheet of an investor. The issues are how, after the effective dates of Statements 141(R) and 160, the initial carrying value of an equity method investment should be determined, and how the difference between the investor's carrying value and the equity of the investee should be allocated to the underlying assets and liabilities of the investee and accounted for in subsequent periods.
Status: The Board ratified the consensuses-for-exposure in this Issue at its September 24, 2008 meeting. A draft abstract was posted to the FASB website on September 26, 2008. Comments on the draft abstract are due by October 22, 2008.
At the November 13, 2008 meeting, the Task Force affirmed the consensuses-for-exposure reached at the September 10, 2008 EITF meeting as a consensus with certain revisions. The Task Force decided to add a clarification that all underlying assets of an equity method investee are not tested for impairment separate from the other-than-temporary impairment assessment of the equity investment. Also to be added is a clarification that an equity method investor should recognize its share of any impairment charge recorded by an investee in accordance with paragraphs 19(b) and 19(c) of APB Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock, which would include recognizing adjustments related to the difference between the investor’s allocated cost and the investee’s basis in the assets in addition to its share of the impairment loss recorded by the investee. The Task Force decided to remove the exceptions to recognizing gains in earnings as a result of sales of equity interests by the investee.
This Issue would be effective on a prospective basis in fiscal years beginning on or after December 15, 2008 and interim periods within those fiscal years, consistent with the effective dates of FASB Statement No. 141 (revised 2007), Business Combinations, and FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements, noncontrolling interests in consolidated financial statements. Earlier application by an entity that has previously adopted an alternative accounting policy would not be permitted.
Dates discussed: September 10, 2008, November 13, 2008


Issue No. 08-5, "Issuer's Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement." Debt securities are often issued with a financial guarantee from an unrelated third party that guarantees the issuer's payment obligations. That guarantee is generally purchased by the issuer who then combines it with the debt and issues the combined security to an investor. By issuing debt combined with the guarantee, the issuer is able to obtain a lower interest rate and/or receive higher proceeds. The guarantee fee could be paid prior to the debt issuance, at the time of the debt issuance, or over the life of the liability. Generally, a guarantee is incorporated into the terms of the debt security and will transfer with the debt security. The guarantee provides the investor with additional assurance that the obligation will be paid (either by the guarantor or the issuer). Current accounting literature does not address whether the issuer should view guaranteed debt as one unit of accounting (the guaranteed liability) or two units of accounting (the unguaranteed debt and a third-party guarantee). The Issue is whether an issuer of debt with a third-party guarantee that is inseparable from the debt instrument should treat the debt and the guarantee as one unit of accounting when the measurement attribute for that debt is fair value.
Status: The Task Force reached a consensus-for-exposure that the scope of this Issue should apply to an issuer’s accounting for all third-party credit enhancements that are issued with and inseparable from a debt instrument and measured at fair value. Consideration of this Issue will be necessary when the fair value of a debt instrument must be disclosed by an issuer even if it is measured on a different basis in the financial statements.
The Task Force reached a consensus-for-exposure that the issuer should not include the effect of the third-party guarantee in the fair value measurement of the liability. Thus, the fair value measurement is determined considering the issuer’s credit standing (without regard to the third-party guarantor’s credit standing). The Task Force concluded that the unit of accounting for the debt does not include the guarantee and that the guarantee does not represent an asset of the issuer. That guarantee is obtained for the benefit of the investor.
The Task Force reached a consensus-for-exposure that an entity that has outstanding debt within the scope of this Issue should disclose the existence of the credit enhancement.
The Task Force reached a consensus-for-exposure that this Issue should be effective on a prospective basis in the first reporting period beginning after the date the final consensus is posted to the FASB website, including interim periods. The effect of initially applying the guidance in this Issue shall be included in the change in fair value in the period of adoption. Earlier application is not permitted.
The Task Force reached a consensus-for-exposure that in the period of adoption an entity should disclose the valuation techniques used to measure liabilities within the scope of this Issue and include a discussion of changes, if any, from the valuation techniques used to measure those liabilities in prior periods.
Status: The Board ratified the consensus in this Issue at its September 24, 2008 meeting. No further EITF discussion is planned.
Dates discussed: June 12, 2008, September 10, 2008


Issue No. 08-1, "Revenue Arrangements with Multiple Deliverables" (previously titled, "Revenue Recognition for a Single Unit of Accounting"). The Task Force considered whether Issue 00-21 should be amended to provide a principle for determining the estimated selling price of the undelivered unit of accounting and to include examples to demonstrate the application of that principle. Existing examples in Issue 00-21 will be updated and additional examples illustrating how an entity might develop the estimated selling price for the undelivered unit of accounting will be added.
The Task Force also discussed whether the current fair value terminology in Issue 00-21 is intended to be representative of a fair value measurement consistent with the requirements of Statement 157, and agreed that the objective of that measurement is not a Statement 157 fair value measurement. The FASB staff notes that Statement 157, paragraph 3(a), excludes from its scope accounting pronouncements that permit measurements that are based on, or otherwise use, VSOE of fair value. Such pronouncements include Issue 00-21 and SOP 97-2, as noted in footnote 3 of Statement 157. The Task Force tentatively concluded that a consensus to revise Issue 00-21 would require references to "fair value" to be replaced with "selling price" to avoid confusion with Statement 157. The Task Force noted that amendments that refer to selling price are not intended to have an impact on the determination of VSOE and third-party evidence of fair value.
The Task Force tentatively agreed with the Working Group recommendation that the scope of this Issue be limited to the proposed amendments to the fair value threshold of Issue 00-21 and not expanded to include other revenue recognition guidance that contains similar concepts (for example, SOP 97-2), but will seek user input on whether the scope of the proposed amendments to the fair value threshold of Issue 00-21 should be expanded to other revenue recognition guidance. The Task Force will also seek user input on what, if any, additional disclosures should be required as a result of the proposed change in the fair value threshold.
A draft abstract marked to show changes to the abstract for Issue 00-21 will be discussed at the November 13, 2008 EITF meeting.
Status: The Task Force reached a consensus to eliminate the residual method of allocation and the requirement to use the relative selling price method when allocating revenue in a multiple deliverable arrangement. When applying the relative selling price method, the selling price for each deliverable shall be determined using vendor specific objective evidence of selling price, if it exists, otherwise third-party evidence of selling price. If neither vendor specific objective evidence nor third-party evidence of selling price exists for a deliverable, the vendor shall use its best estimate of the selling price for that deliverable when applying the relative selling price method.
The Task Force reached a consensus that this Issue shall be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with earlier application permitted. If a vendor elects earlier application and the first reporting period of adoption is not the first reporting period in the vendor’s fiscal year, the guidance in this Issue must be applied through retrospective application from the beginning of the vendor’s fiscal year and the vendor must disclose the effect of the change to those previously reported periods in the year of adoption.
The Task Force reached a consensus to provide entities with the option of applying this Issue on a retrospective basis in accordance with the guidance in Section 210-10-45-10 on the presentation of accounting changes and error corrections, if the conditions in paragraph 250-10-45-9 are not met. That is, it must not be impracticable for a vendor to report a change in accounting principle through retrospective application of the new accounting principle to prior periods.
The Task Force reached a consensus on the transition disclosure requirements that an entity shall disclose information that describes the effect of the change in accounting principle on revenue trends. To satisfy that objective, an entity is required at a minimum to disclose qualitative information by similar types of arrangements. If the effect of adopting this Issue is material, the qualitative information shall be supplemented with quantitative information to satisfy the objective.
At its September 23, 2009 meeting, the Board ratified the consensus reached by the Task Force in this Issue. Accounting Standards Update 2009-13 (Topic 605) was issued to update the FASB Accounting Standards CodificationTM. No further EITF discussion is planned.
Dates Discussed: March 12, 2008; June 12, 2008; September 10, 2008; November 13, 2008; March 19, 2009; June 18, 2009; September 9-10, 2009


Issue No. 03-15, "Interpretation of Constraining Conditions of a Transferee in a CBO Structure." Collateralized bond obligations (CBOs) are securitizations of high-yield debt, bank loan participations, or similar financial assets. The CBO issuing vehicle is a special-purpose entity (SPE), typically a corporation domiciled (for security law and tax reasons) in the Cayman Islands. The SPE is not a qualifying SPE (QSPE) because the conditions under which it can sell assets violate the provisions of EITF Abstracts, Topic No. D-66, "Effect of a Special-Purpose Entity's Powers to Sell, Repledge, or Distribute Transferred Financial Assets under FASB Statement No. 125." The SPE has, at all times, the discretion to hold or sell defaulted assets or assets deemed to be "credit risk" or "credit improved" assets. The SPE also can sell up to between 20 percent and 30 percent annually of the aggregate principal balance of collateral (as of the beginning of each year) (known in the industry as the "free trade basket") during the reinvestment period. The free trade basket is in addition to the SPE's ability to trade defaulted credit risk and credit improved securities so that if the collateral manager decided that 50 percent of the SPE's assets were "credit improved," the collateral manager would be able to trade 70 percent of the SPE's assets (assuming a 20 percent free trade basket) in that year. Paragraph 9(b) of Statement 140 provides that with respect to a transferee that is not a QSPE, no condition both constrains the transferee (or holder) from taking advantage of right to pledge or exchange the transferred assets and provides more than a trivial benefit to the transferor. If the constraint is not imposed by the transferor, as would be the case in a typical CBO structure, then that constraint may or may not provide more than a trivial benefit to the transferor. The issue is whether the "free trade basket" violates paragraph 9(b) of Statement 140 and therefore precludes sale treatment by the transferor.
Status: To be discussed at a future meeting.

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