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.

[10-E] [10-D] [10-C] [10-B] [10-A] [09-L] [09-K] [09-J] [09-I] [09-H] [09-G] [09-F] [09-E] [09-D] [09-B] [09-4] [09-3] [09-2] [08-9] [08-1] [03-15] 

Downloading Documents


Issue No. 10-E, "Debtor's Accounting for Real Estate Subject to a Nonrecourse Mortgage in Default Prior to Forfeiture." A borrower who purchases real property financed with nonrecourse debt, may decide (for example, because of foreclosure, bankruptcy, or market conditions) to transfer the property to the lender in full satisfaction of its obligation under the note. The lender assumes the title to the property and a receiver may be appointed. It is common for the borrower to recognize the impairment loss on the property in a period (or periods) prior to the recognition of the gain on the extinguishment of debt.
EITF Issue No. 91-2, "Debtor's Accounting for Forfeiture of Real Estate Subject to a Nonrecourse Mortgage," addresses how the scope of FASB Statement No. 15, Accounting by Debtors and Creditors for Troubled Debt Restructurings (Subtopic 470-60, Debt—Troubled Debt Restructurings by Debtors), relates to the accounting for the transfer of real estate in satisfaction of a nonrecourse mortgage; however, no consensus was reached.
There are differing views in practice about whether the guidance in Subtopic 360-20, Property, Plant, and Equipment—Real Estate Sales, applies. If the investor is required to apply the guidance in Subtopic 360-20, generally an investor does not satisfy the requirements to recognize a "sale" prior to the legal transfer of the real estate to the lender and the extinguishment of the related nonrecourse indebtedness. As a result, the investor would continue to include the real estate, debt, and the results of the real estate's operations in its consolidated financial statements and would recognize the gain from the extinguishment of the debt only once the obligation has been legally satisfied.
If Subtopic 360-20 does not apply, the investor is required to deconsolidate the single-purpose entity pursuant to Subtopic 810-10, Consolidation. The investor would derecognize the real estate and debt in its consolidated statement of financial position, no longer include the real estate's operations in its consolidated income statement, and recognize a gain as a result of derecognizing a liability with a carrying amount in excess of the carrying amount of the real estate. The investor would continue to report its interest in the single-purpose entity in accordance with either Topic 323, Investments—Equity Method and Joint Ventures, or Topic 325, Investments—Other, whichever is appropriate.
The issue is whether the sale of real estate guidance in Subtopic 360-20 applies to all derecognition events involving subsidiaries that are in substance real estate.
Status: This Issue will be discussed at a future meeting.
Dates discussed: None


Issue No. 10-D, "Accounting for Certain Fees Associated with Recently Enacted Health Care Legislation." The Patient Protection and Affordable Care Act (PPACA) and the Health Care and Education Reconciliation Act, which includes a number of changes to PPACA, were signed into law on March 30, 2010, and contain a number of provisions that will affect the accounting for many entities. This Issue addresses one aspect of the accounting for the fees payable by pharmaceutical manufacturers to the Federal government. The Act imposes an annual fee on the pharmaceutical manufacturing sector for each calendar year beginning after 2010. The fee ranges from $2.5 billion to $4.1 billion and is payable by no later than September 30 of the applicable calendar year. This is a non-deductible fee that will be allocated across the industry based on relative market share. The annual fee payable in a given calendar year is determined by reference to sales in the preceding calendar year. This Issue applies to all pharmaceutical manufacturers that are subject to this fee, which, according to Section 9008 of the Act, is any manufacturer or importer with gross receipts from branded prescription drug sales to any federal government program.
Practice is likely to recognize the fee in earnings on a ratable basis in the calendar year in which the fee is paid. The rationale is that a pharmaceutical company does not have a liability, as defined by FASB Concepts Statement No. 6, Elements of Financial Statements, prior to the year sales are made that trigger the payment.
While there does not appear to be diversity in the timing of when the fees will be recognized, divergent views do exist about how such fees should be classified in the income statement. Some constituents believe that the fees should be classified as a reduction of revenue, while others believe they should be accounted for as an operating cost.
The issue is how the annual fee imposed by the Act should be classified in an entity's income statement.
Status: This Issue will be discussed at a future meeting.
Dates discussed: None.


Issue No. 10-C, "Reporting of Participant Loans in Employee Benefit Plan Financial Statements." Participants in a defined contribution plan can direct the investment of their plan account balance into an investment in a loan to themselves if the plan allows for participant loans. A participant loan is an extension of credit to a plan participant by the plan, in accordance with the plan's written loan policy. The participant's assets are liquidated to provide the cash for the loan, which is secured by the participant's account balance.
Although participant loans are receivables, for reporting purposes participant loans are considered an investment in accordance with paragraph 962-325-45-10. Section 962-325-35, Plan Accounting—Defined Contribution Pension Plans, Investments—Other, Subsequent Measurement, requires most investments held by a plan, including participant loans, to be carried at fair value. Prior to the issuance of FASB Statement No. 157, Fair Value Measurements (codified as Topic 820, Fair Value Measurements and Disclosures), a fair value of a plan investment was defined as the amount that the plan could reasonably expect to receive in a current sale of assets and was required to be measured by quoted market prices when available. In practice, most participant loans were carried at their amortized cost, which was considered a good faith approximation of the fair value using that definition. According to Topic 820, fair value of plan investments is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Under Topic 820, plans can no longer assume that the outstanding principal balance of a loan approximates its fair value and, so, the valuation principles of Topic 820 should be applied. Therefore, estimating the fair value of a participant loan requires highly subjective assumptions about market interest rates and credit risk, among other assumptions.
Some constituents believe that fair value determined in accordance with Topic 820 may not be a relevant measurement attribute for participant loans because plan participants are a primary user of the plan's financial statements and repayments of the unpaid balance of the loan are at face value. A participant would not repay more than the unpaid balance plus accrued interest. Accordingly, a value other than the unpaid balance of the participant loan could be misleading to the participants and other financial statement users (such as plan regulators).
The issue is how a participant loan held by a defined contribution plan should be measured.
Status: This Issue will be discussed at a future meeting.
Dates discussed: None.


Issue No. 10-B, "Accounting for Multiple Foreign Currency Exchange Rates." In February 2003, the Venezuelan government announced certain foreign currency exchange controls. Since then, there has been no free market to purchase or sell foreign currency in Venezuela. Companies operating in Venezuela have been able to obtain foreign currency either at the official exchange rate by requesting it from the Venezuelan Foreign Exchange Administration Board (CADIVI) or at what is generally referred to as the “parallel” exchange rate. The parallel exchange rate is determined by market forces and can be accessed through a series of purchases and sales of securities, such as bonds. The parallel exchange rate is variable and may differ significantly from the official rate.
There appears to be diversity in practice while applying the guidance in Topic 830, Foreign Currency Matters, to multiple exchange rates in Venezuela. The FASB staff understands that some entities have used the parallel rate to remeasure foreign-currency-denominated items and the official rate to translate the Venezuelan subsidiary’s financial statements for consolidating them with the U.S. parent. However, other entities in similar situations have used the parallel rate for both remeasurement and translation purposes.
The issue is whether, in an economy with multiple exchange rates, it is appropriate to use different exchange rates for (1) remeasurement of a foreign-currency-denominated transaction and (2) translation of a foreign subsidiary’s financial statements.
The objective of the Issue is to determine the appropriate accounting and consider disclosures when such situations are present. While the Issue is highlighted by the situation in Venezuela, the EITF discussion is expected to be broader so as to be applicable to any country with multiple exchange rates.
In the interim, the SEC staff has issued Accounting Standards Update No. 2010-19, Foreign Currency (Topic 830): Foreign Currency Issues: Multiple Foreign Currency Exchange Rates.
Status: This Issue will be discussed at a future meeting.
Dates discussed: None.


Issue No. 10-A, "How the Carrying Amount of a Reporting Unit Should Be Determined When Performing Step 1 of the Goodwill Impairment Test." Goodwill is tested for impairment at the reporting unit level based on a two-step test. The first step compares the fair value of a reporting unit with its carrying amount, including goodwill. If a reporting unit's carrying amount exceeds its fair value, the second step of the test must then be performed to measure the amount of impairment, if any. Paragraph 350-20-35-39, states that assets and liabilities are assigned to a reporting unit if (a) the asset will be employed in or the liability relates to the operations of the reporting unit, and (b) the asset or liability will be considered in determining the fair value of the reporting unit.
Constituents have questioned whether a reporting unit's carrying amount should be based on an Enterprise Value premise or on an Equity Value premise. Enterprise Value is generally considered to be the value of a reporting unit excluding debt for purposes of the goodwill test (that is, total assets less current, noninterest-bearing liabilities). Accordingly, when a single reporting unit entity's carrying amount is based on an Enterprise Value premise, the carrying amount can also be calculated as the sum of the debt and equity of the entity. Under an Enterprise Value premise, debt is excluded from the liabilities assigned to a reporting unit and consequently from the fair value of the reporting unit. Excluding debt from the liabilities assigned to a reporting unit eliminates the potential for a significant difference in the fair value and carrying amount of debt to affect the result of the first step of the goodwill impairment test. Alternatively, when a reporting unit's carrying amount is based on an Equity Value premise, debt, like any other liability, is available for assignment to a reporting unit.
When measuring the fair value of the equity of a reporting unit, entities often measure the enterprise value then subtract the value of the entity's debt. General valuation practice has been to subtract the par value of the entity's debt from the fair value of the enterprise in order to estimate the fair value of equity. Prior to the recent economic crisis, the approach of subtracting the par value of debt was considered a practical expedient in which the par value of debt was considered to be a reasonable approximation of the debt's fair value in most circumstances. However, due to the recent environment in credit markets in which the trading prices for many debt instruments when traded as assets indicate significant discounts to their par value, questions have been raised about whether to use the fair value or the par value of debt when measuring the fair value of equity for financial reporting purposes.
Whether debt is included or excluded from a reporting unit's carrying amount can lead to a different conclusion in the step one test and, consequently, may impact whether the second step of the goodwill impairment test is performed. The issue is how the carrying amount of a reporting unit should be determined when performing Step 1 of the goodwill impairment test.
Status: This Issue will be discussed at a future meeting.
Dates discussed: None


Issue No. 09-L, "Health Care Entities: Measuring Charity Care for Disclosure." Health care entities provide services to certain patients without expectation of payment (or cash inflows). These services are called charity care and are generally provided to patients who meet certain guidelines established by the health care entity, such as prescribed financial criteria of the patient. Some constituents believe that disclosure about a health care entity's policy for providing charity care, as well as the level of charity care provided, is useful because it provides an indication of the level of community benefit provided by the health care entity.
Under the current requirements, measurement of charity care using the provider's standard rates (as an indication of charges foregone) is prevalent. Some have used cost in their disclosures. Questions have been raised about whether the measure used in providing this disclosure should be standardized to improve comparability of reporting by health care entities.
The issue is how the disclosure of charity care provided by health care entities should be measured.
Status: At the March 18, 2010 EITF meeting, the Task Force reached a consensus-for-exposure that cost should be the measurement basis for a health care entity's charity care disclosure. Cost should be determined consistent with the measurement used for reporting charity care for IRS regulatory purposes (that is, the direct and indirect costs related to providing the service). Some Task Force members observed that requiring a single measure of charity care would improve the usefulness of the disclosure by enhancing comparability.
At its March 31, 2010 meeting, the Board ratified the consensus-for-exposure reached by the Task Force for this Issue and approved the issuance of a proposed Update (Topic 954) for a comment period that ended on May 17, 2010. This Issue will be discussed further at a future meeting.
Dates discussed: March 18, 2010.


Issue No. 09-K, "Health Care Entities: Presentation of Insurance Claims and Related Insurance Recoveries." Subtopic 720-20, Other Expenses, Insurance Costs (previously EITF Issue No. 03-8, "Accounting for Claims-Made Insurance and Retroactive Insurance Contracts by the Insured Entity") addresses issues related to the accounting by an insured entity for claims incurred under claims-made insurance and retroactive insurance contracts. In Issue 03-8, the EITF observed that "unless the conditions of FASB Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts, are met, offsetting prepaid insurance and receivables for expected recoveries from insurers against a recognized IBNR [incurred but not reported] liability or the liability incurred as a result of a past insurable event would not be appropriate." The application of this guidance generally results in liability claims and related insurance recoveries being recorded on a gross-basis.
Questions have been raised as to whether the guidance in Subtopic 720-20 applies to health care entities because the AICPA Audit and Accounting Guide, Health Care Organizations, included language that some have interpreted as requiring or permitting the netting of insurance recoveries with an organization's estimated accrual for medical malpractice claims.
The issue is how health care entities should record liabilities for medical malpractice and other similar claims and related insurance recoveries.
Status: At the March 18, 2010 EITF meeting, the Task Force reached a consensus-for-exposure that all entities, including health care entities, are required to apply the guidance in Section 210-20-45, Balance Sheet, Offsetting, Other Presentation Matters, in determining whether claims and insurance recoveries are permitted to be presented on a net basis. At its March 31, 2010 meeting, the Board ratified the consensus-for-exposure reached by the Task Force for this Issue and approved the issuance of a proposed Update (Topic 954) for a comment period that ended on May 17, 2010. This Issue will be discussed further at a future meeting.
Dates discussed: March 18, 2010


Issue No. 09-J, "Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades." Employee stock options with exercise prices denominated in the currency in which the underlying equity securities trade, is sometimes a different currency from the functional currency of the issuer, the functional currency of the subsidiary employing the employee, or the payroll currency of the employee recipient.
Topic 718 provides guidance on the classification of a share-based payment award as either equity or a liability, but it does not explicitly indicate which currency to evaluate nor does it specify the ordinary currency of a share-based payment award that would be consistent with equity classification. In fact, it appears that paragraph 718-10-25-14 was designed to provide an exception to the guidance on liability classification of an award. Topic 718 does not address which currency denomination is the base case that would be consistent with equity classification. At the same time, an interpretation of Statement123(R) allows an award with an exercise price denominated in the currency of the market in which the underlying equity instrument primarily trades to qualify for equity classification.
In the absence of specific authoritative guidance, diversity in practice has developed. Some entities consider that the base case is the functional currency of the issuer. Others consider the base case to be the currency in which the issuer's shares primarily trade. As a result, similar share-based payment awards may be classified differently by entities as either a liability or equity.
The issue is whether denominating the exercise price of an employee share-based payment award in the currency in which the underlying stock trades results in liability treatment if the trading currency is different from the functional currency of the issuer, the functional currency of the subsidiary employing the employee, or the payroll currency of the employee receiving the option.
Status: At the November 19, 2009 EITF meeting, the Task Force reached a consensus-for-exposure that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity's equity securities trades should be considered an equity award assuming all other criteria for equity classification are met.
At its December 2, 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 718) that will end on February 12, 2010.
At the March 18, 2010 EITF meeting, the Task Force affirmed its consensuses-for-exposure as a consensus. The Task Force also affirmed as a consensus that the amendments resulting from this Issue shall be effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The guidance in the amendments resulting from this Issue would be applied by recording a cumulative effect adjustment to the opening balance of retained earnings for all outstanding awards as of the beginning of the fiscal year in which the amendments are initially applied. Early adoption is permitted. If an entity elects early adoption and the period of adoption is not the first reporting period of the entity's fiscal year, the entity is required to apply the guidance retrospectively from the beginning of the entity's fiscal year. The transition disclosures in paragraphs 250-10-50-1 through 50-3 are required.
At its March 31, 2010 meeting, the Board ratified the consensus reached by the Task Force in this Issue. An Accounting Standards Update for Topic 718 was issued to update the FASB Accounting Standards CodificationTM. No further EITF discussion is planned.
Dates discussed: November 19, 2009, March 18, 2010


Issue No. 09-I, "Effect of a Loan Modification When the Loan Is Part of a Pool That Is Accounted for as a Single Asset." Subtopic 310-30 provides guidance on accounting for acquired loans that have evidence of credit deterioration upon acquisition. Paragraph 310-30-15-6 allows for acquired assets with "common risk characteristics" to be accounted for in the aggregate as a pool. An established pool becomes the unit of accounting. When loans are accounted for as part of a pool, the purchase discount is not allocated to individual loans, thus all of the loans in the pool accrete at a pool rate (based on cash flow projections for the pool). Under Subtopic 310-30, the impairment analysis is also performed on the pool as opposed to each individual loan.
Paragraphs 310-40-15-4 through 15-12 (formerly, Statement 15) establish the criteria for evaluating whether a loan modification should be classified as a troubled debt restructuring (TDR). Practice has questioned whether TDR accounting should apply. If the loan modification is a TDR, some entities believe that the modified loan should be removed from the pool (or that the entire pool should be accounted for as a TDR). Once it is removed from the pool, the loan would no longer be accounted for under Subtopic 310-30. Others believe that a loan modification that is a TDR should not result in removal of that loan from the pool.
The scope of this Issue includes modifications of loans within a group of loans accounted for as a pool established in accordance with paragraph 310-30-15-6. Modifications of loans accounted for as individual assets under Subtopic 310-30 or of loans that do not fall within the scope of Subtopic 310-30 are not within the scope of this Issue.
The issues are whether entities that have modified acquired loans with deteriorated credit quality that were initially accounted for as part of a pool in accordance with paragraph 310-30-15-6 should apply the TDR guidance in paragraphs 310-40-15-4 through 15-12, and, if modified acquired loans should be removed from the pool if the modification is a TDR, whether entities should use the pool's effective rate or the individual loan's effective rate to determine the carrying value of the modified loan to be removed from the pool.
Status: At the November 19, 2009 EITF meeting, the Task Force reached a consensus-for-exposure that an entity should not apply TDR accounting guidance to loans accounted for as a pool under Subtopic 310-30. Some Task Force members indicated that they believe that once a pool is established, individual loans should not be removed from the pool unless the entity sells, forecloses, or otherwise receives assets in satisfaction of the loan or upon write-off of the loan in accordance with paragraph 310-30-40-1. Those Task Force members noted that Subtopic 310-30 precludes refinancings and restructurings that are not TDRs from being considered new loans. Those Task Force members also indicated that they believe that a TDR in the form of a modification or restructuring results in a continuation of the prior loan rather than the creation of a new loan and, accordingly, assets have not been received to satisfy the debt.
Some Task Force members noted that the accounting for modifications of loans accounted for within a pool under Subtopic 310-30 was inconsistent with the treatment of a loan that is economically similar at the time of modification, but that was originated by an entity rather than acquired in a purchase. Those Task Force members expressed concern that over time, the loans within a pool may no longer have similar economic characteristics and that over-performing loans may mask the underperformance of other loans. The Task Force acknowledged the inconsistency, but noted that they believe accounting inconsistencies between originated and purchased loans, including whether pooled asset accounting should continue to be permitted, would be better addressed in the FASB's ongoing financial instruments project.
At its December 2, 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 310) that will end on February 12, 2010.
The Task Force affirmed as a consensus its consensus-for-exposure that an entity should not apply troubled debt restructuring accounting guidance to loans accounted for as a pool that were initially acquired with credit deterioration.
The Task Force reached a consensus that the amendments resulting from this Issue shall be effective for modifications of loans accounted for within a pool under Subtopic 310-30 in interim or annual periods ending on or after July 15, 2010. The amendments should be applied on a prospective basis only. Early application is permitted. The Task Force decided to permit a one-time election to terminate pool accounting upon adoption of the amendments resulting from this Issue.
At its March 31, 2010 meeting, the Board ratified the consensus reached by the Task Force in this Issue. An Accounting Standards Update for Topic 310 was issued to update the FASB Accounting Standards CodificationTM. No further EITF discussion is planned.
Dates discussed: November 19, 2009, March 18, 2010


Issue No. 09-H, "Health Care Entities: Revenue Recognition." Health care entities may perform services for which the ultimate collection of all or a certain portion of the amount billed or billable is not expected in its entirety, is doubtful, or cannot be determined at the time the services are rendered. In some situations (for example, charity care), health care entities record no revenue.
For billings to self-pay patients, it has been industry practice for health care entities to adopt a revenue recognition policy to record revenue at the gross charge along with a relatively high bad debt provision as provided for in paragraph 904-605-25-3. Health care entities that apply this policy also record revenue for insured patients when services are provided and adjust that revenue for contractual allowances (discounts) based on third-party payor or other arrangements. A bad debt provision is typically recorded for the amount due for deductibles and co-pays judged to be uncollectible. The bad debt provision is generally classified as an expense and not as a reduction to revenue.
The issue is whether collectibility must be reasonably assured prior to a health care entity recognizing revenue.
Status: This Issue will be discussed further at a future meeting.
Dates discussed: March 18, 2010.
 

Issue No. 09-G, "Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts." Insurance entities incur costs that meet the definition of acquisition costs included in Topic 944. The implementation guidance in paragraph 944-30-55-1 provides three examples of acquisition costs that "vary with and are primarily related to" insurance contracts issued or renewed during the period in which those costs are incurred. They are (a) agent and broker commissions, (b) salaries of certain employees involved in the underwriting and policy issue functions, and (c) medical and inspection fees.
Costs incurred by insurance entities that meet the definition of acquisition costs in Topic 944 are recognized as assets and are commonly referred to as deferred acquisition costs, or DAC. DAC assets are amortized over time using methods of amortization dependent upon the nature of the underlying insurance product (that is, proportional to revenues, based on a contract's estimated gross profit, or based on a contract's estimated gross margin). Other costs, such as those relating to investments, general administration, and policy maintenance that do not vary with and are not primarily related to the acquisition of new and renewal insurance contracts are charged to expense as incurred.
The Issue is how the definition of acquisition costs should be interpreted in assessing whether costs relating to the acquisition of new or renewal insurance contracts qualify as deferred acquisition costs. This Issue is applicable to insurance entities that are within the scope of Topic 944 (which, as stated in paragraph 944-10-15-2, includes but is not limited to stock life insurance entities, mutual life insurance entities, and property and liability insurance entities) that incur costs in the acquisition of new and renewal insurance contracts.
Status: At the November 19, 2009 EITF meeting, the Task Force reached a consensus-for-exposure. At its December 2, 2009 meeting, the Board ratified the consensus-for-exposure. A proposed Accounting Standards Update (Topic 944) was exposed for comment.
At the March 18, 2010 EITF meeting, the Task Force affirmed its consensus-for-exposure that acquisition costs should include only those costs that are directly related to the acquisition or renewal of insurance contracts by applying a model similar to the accounting for loan origination costs in Subtopic 310-20. The Task Force also affirmed its consensus-for-exposure that costs related to unsuccessful contract efforts should be expensed as incurred.
The Task Force also affirmed its consensus-for-exposure that advertising costs should only be capitalized if the criteria for capitalizing such costs pursuant to the direct-response advertising guidance in Topic 340 are met. The Task Force discussed how its decision to exclude capitalized direct response advertising costs from DAC affects the premium deficiency calculation and the realizability assessment of the amounts of capitalized direct-response advertising. The Task Force requested that the staff perform additional analysis on the interaction of these impairment tests for discussion at a future meeting.
The Task Force also discussed concerns raised by respondents relating to the costs and efforts involved in implementing the proposed model and whether it would require some property and casualty insurers to defer more costs under the revised model than what is currently being deferred in practice under the current model for DAC. The Task Force requested that the staff perform additional research on the efforts required and methodologies that could be used to implement the proposed model.
Dates discussed: November 19, 2009, March 18, 2010


Issue No. 09-F, "Casino Base Jackpot Liabilities." Jackpots are categorized as either non-progressive jackpots, which are the predetermined fixed payouts depicted on the pay table of the machine (such as payouts based on reel combinations in a mechanical slot machine), or progressive jackpots, which are payouts based on the machine’s programmed payout percentage and pay table, but the amount of the progressive jackpot increases as customers play the machine.
In many gaming jurisdictions, gaming entities are required (by law or regulation) to award the incremental amount of a progressive jackpot (in the case of either a single machine or a local area linked network) whether the jackpot is won during the normal reel cycle or not. Most gaming jurisdictions require only the incremental amount to be retained and awarded. That has resulted in entities generally accruing the incremental amount of a progressive jackpot with an offset to revenue based on the number of coins played because the gaming entity has a present obligation to award the incremental amount even if the jackpot is not won.
Diversity in practice has developed on whether casinos should accrue for the base jackpot prior to the jackpot being won (paragraph 924-605-25-1 versus paragraph 924-605-25-2). This Issue applies to all entities that generate revenue from gaming activities. The issue is how an entity should account for base jackpot liabilities if the entity can avoid payment of the jackpot.
Status: At the November 19, 2009 EITF meeting, the Task Force reached a consensus-for-exposure. At its December 2, 2009 meeting, the Board ratified the consensus-for-exposure and exposed a proposed Accounting Standards Update (Topic 924) for comment.
At the March 18, 2010 EITF meeting, the Task Force affirmed as a consensus its consensus-for-exposure that entities should accrue a jackpot at the time the entity has the obligation to pay that jackpot.
The Task Force reached a consensus to modify the guidance in the proposed Update to address a respondent's comment that the principle equally applies to both base jackpots and incremental amounts in progressive jackpots because the timing of accrual for the jackpot liability is when the operator has an obligation to pay.
The Task Force affirmed as a consensus that the amendments resulting from this Issue shall be effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010, with earlier application permitted. However, if an entity elects earlier application and the period of adoption is not the first reporting period in the entity's fiscal year, the guidance in the amendments resulting from this Issue must be applied through retrospective application from the beginning of the entity's fiscal year.
At the March 31, 2010 meeting, the Board ratified the consensus reached by the Task Force in this Issue. No further EITF discussion is planned.
Dates discussed: November 19, 2009, March 18, 2010

 
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 the November 19, 2009 meeting, the Task Force did not affirm its 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 amount of cash that will be distributed in total) should be considered a stock dividend. Instead, the Task Force reached a consensus, consistent with the alternative view presented in the proposed Update, that such a distribution should be accounted for and included in EPS calculations as a share issuance.
The Task Force did not affirm its consensus-for-exposure that an entity should reflect a stock dividend in EPS in its financial statements on the later of the ex-dividend date or the date the number of shares to be issued is known.
The Task Force affirmed as a consensus that the amendments in this Update shall be effective for interim and annual periods ending on or after December 15, 2009, and would be applied on a retrospective basis.
At its December 2, 2009 meeting, the Board ratified the consensus reached by the Task Force in this Issue. An Accounting Standards Update for Topic 505 will be issued to update the FASB Accounting Standards CodificationTM. No further EITF discussion is planned.
Dates discussed: September 9–10, 2009; November 19, 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: The Working Group on this Issue No. 09-D, "Application of the AICPA Audit and Accounting Guide, Investment Companies, by Real Estate Investment Companies," met in December 2009. Further Task Force discussion on this Issue has been indefinitely deferred pending the Board's deliberations on its investment properties project.

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.
At the November 19, 2009 EITF meeting, the Task Force considered the amendments in the proposed Update and whether inconsistencies in the measurement and subsequent accounting requirements would continue to exist for research and development assets acquired in an asset acquisition compared with assets acquired in a business.
The Task Force also considered whether the amendments in the proposed Update would improve financial reporting by aligning the recognition criteria for research and development assets acquired in an asset acquisition with the recognition criteria for research and development assets acquired in a business combination.
The Task Force was unable to affirm its consensus-for-exposure. Based on that discussion, the Task Force decided to recommend to the FASB Chairman that this project be removed from the EITF agenda.
The FASB Chairman removed this Issue from the EITF agenda and will consider adding a broader research and development project to the FASB agenda. Since then, the FASB staff has recommended that the FASB chairman not add the issue to the FASB agenda. No further EITF discussion is planned.
Dates discussed: March 19, 2009; June 18, 2009; September 9-10, 2009; November 19, 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 March 18, 2010 EITF meeting, the Task Force agreed to limit the scope of this Issue to arrangements that include milestones relating to research or development deliverables so to address the practice issue that was brought to the Task Force without inadvertently affecting other transactions.
The Task Force clarified that this Issue applies to milestones in arrangements within the scope of this Issue regardless of whether the arrangement is determined to have single or multiple deliverables or units of accounting, but is not intended to provide guidance on how contingent consideration should be allocated in a multiple element arrangement. The Board's revenue recognition project is expected to address contingent consideration more broadly.
The Task Force affirmed as a consensus its prior decisions reached, which include:

a. The guidance in this Issue must be met in order for a vendor to recognize consideration that is contingent upon achievement of a substantive milestone in its entirety in the period in which the milestone is achieved
b. The principle that must be considered in determining whether a milestone is substantive
c. The disclosures that a vendor would be required to disclose in its notes to the financial statements for each arrangement that contains a milestone.

The Task Force reached a consensus that the amendments resulting from this Issue shall be applied on a prospective basis to milestones achieved in fiscal years, and interim periods within those years, beginning after June 15, 2010, with earlier application permitted. However, if a vendor elects earlier application and the period of adoption is not the first reporting period in the vendor's fiscal year, the guidance in the amendments resulting from this Issue must be applied through retrospective application from the beginning of the vendor's fiscal year. The vendor must disclose the effect of the change to those previously reported interim periods in the year of adoption.
The Task Force also reached a consensus to provide entities with the option of applying the amendments resulting from this Issue on a retrospective basis following the guidance in Topic 250.
The Task Force reached a consensus on the transition disclosure requirements that an entity should apply the disclosure requirements in Section 250-10-50 for any change in accounting principle, including a change in the method of applying an accounting principle.
At the March 31, 2010 meeting, the Board ratified the consensus reached by the Task Force in this Issue.
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, March 18, 2010

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.


Additional Details