Tentative Board Decisions

Tentative Board decisions are provided for those interested in following the Board’s deliberations. All of the reported decisions are tentative and may be changed at future Board meetings.

December 11, 2015 FASB Board Meeting

Ratification of EITF consensuses and tentative conclusion. The Board ratified the consensuses reached at the November 12, 2015 Emerging Issues Task Force meeting on the following EITF Issues. The Board directed the staff to draft Accounting Standards Updates finalizing those consensuses for vote by written ballot.

EITF Consensuses

Issue No. 15-B, “Recognition of Breakage for Certain Prepaid Stored-Value Products”

The EITF reached a consensus that an entity’s liability for a prepaid stored-value product is a financial liability within the scope of Subtopic 405-20 on extinguishments of liabilities. However, the EITF agreed that it is appropriate to provide a narrow scope exception to the derecognition guidance in Subtopic 405-20 to require breakage to be accounted for in a manner consistent with Topic 606 on revenue from contracts with customers for liabilities resulting from the sale of prepaid stored-value products within the scope of the Update.

The EITF also reached a consensus that a technical correction to the guidance in Subtopic 405-20 should be made to acknowledge the existence of other derecognition guidance in GAAP.

The minutes of the November 12, 2015 EITF meeting, which will be posted to the FASB website the week of December 21, 2015, describe the consensus in detail.

Issue No. 15-D, “Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships”

The EITF reached a consensus that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria (including those in paragraphs 815-20-35-14 through 35-18) continue to be met.

Specifically, when applying the guidance in paragraphs 815-25-40-1 (for fair value hedges) and 815-30-40-1 (for cash flow hedges), a change in the counterparty to a derivative instrument would not, in and of itself, be considered a “termination” of the original derivative instrument by the entity. Similarly, when applying the guidance in paragraph 815-20-55-56, a change in the counterparty to a derivative instrument would not, in and of itself, be considered a change in a “critical term” of the hedging relationship.

The minutes of the November 12, 2015 EITF meeting, which will be posted to the FASB website the week of December 21, 2015, describe the consensus in detail.

Issue No. 15-E, “Contingent Put and Call Options in Debt Instruments”

The EITF reached a consensus that clarifies that the determination of whether the economic characteristics and risks of call (put) options are clearly and closely related to their debt hosts only requires an assessment of the four-step decision sequence in paragraph 815-15-25-42. Consequently, for contingently exercisable call (put) options, an assessment of whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risk is not required.

The minutes of the November 12, 2015 EITF meeting, which will be posted to the FASB website the week of December 21, 2015, describe the consensus in detail.

EITF Tentative Conclusions

The Board ratified the consensus-for-exposure reached at the November 12, 2015 Emerging Issues Task Force meeting on the following EITF Issue. The Board directed the staff to draft a proposed Accounting Standards Update reflecting the consensus-for-exposure for vote by written ballot. The Board decided to expose the proposed Update for Issue 15-F for public comment for a period of 60 days.

Issue No. 15-F, "Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments"

Issue 1: Debt Prepayment or Debt Extinguishment Costs

The EITF reached a consensus-for-exposure that cash payments for debt prepayment or extinguishment costs should be classified as cash outflows for financing activities.

Issue 2: Settlement of Zero-Coupon Bonds

The EITF reached a consensus-for-exposure that, upon settlement, the portion of the cash payment attributable to the accreted interest should be classified as a cash outflow for operating activities and the portion of the cash payment attributable to the principal should be classified as a cash outflow for financing activities.

Issue 3: Contingent Consideration Payments Made after a Business Combination

The EITF reached a consensus-for-exposure that cash payments made by an acquirer after a business combination for the settlement of a contingent consideration liability should be separated and classified as cash outflows for financing activities and operating activities. Specifically, the payments, or the portion of the payments, up to the amount of the contingent consideration liability recognized at the acquisition date, including measurement-period adjustments, should be classified as cash outflows for financing activities if the amount was not paid soon after the business combination occurred. Amounts paid in excess of the amount of the contingent consideration liability recognized at the acquisition date, including measurement-period adjustments, should be classified as cash outflows for operating activities.

Issue 4: Proceeds from the Settlement of Insurance Claims

The EITF reached a consensus-for-exposure that a reporting entity should classify the proceeds received from the settlement of insurance claims, excluding proceeds received from corporate-owned life insurance policies and bank-owned life insurance policies, on the basis of the insurance coverage (that is, the nature of the loss), including those proceeds that are received in a lump-sum settlement for which reasonable judgment is required to determine the classification on the basis of the nature of each loss.

Issue 5: Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned Life Insurance Policies

The EITF reached a consensus-for-exposure that cash proceeds received from the settlement of corporate-owned life insurance policies should be classified as cash inflows from investing activities. The EITF also reached a consensus-for-exposure to permit, but not require, alignment of the classification of premiums paid with the classification of proceeds received for these types of policies.

Issue 6: Distributions Received from Equity Method Investees

The EITF reached a consensus-for-exposure that all distributions received from an equity method investee are presumed to be returns on the investment and classified as cash inflows from operating activities unless the investor’s cumulative distributions received less distributions received in prior years that were determined to be returns of investment exceed cumulative equity in earnings recognized by the investor (as adjusted for basis differences). When such an excess occurs, the current-period distribution up to this excess is considered a return of the investment and classified as cash inflows from investing activities. The consensus-for-exposure does not address equity method investments measured using the fair value option.

Issue 7: Beneficial Interests in Securitization Transactions

The EITF reached a consensus-for-exposure to require disclosure of a transferor’s beneficial interest obtained in a securitization of financial assets as a noncash activity.

The EITF also reached a consensus-for-exposure that cash receipts from payments on a transferor’s beneficial interests in securitized trade receivables should be classified as cash inflows from investing activities.

Issue 8: Application of the Predominance Principle

The EITF reached a consensus-for-exposure to provide additional guidance that clarifies when an entity should separate cash receipts and cash payments and classify them into more than one class of cash flows (including when reasonable judgment is required to estimate and allocate cash flows) and when an entity should classify the aggregate of those cash receipts and payments into one class of cash flows based on predominance. In applying the additional guidance, the classification of cash receipts and payments should be determined first by applying specific guidance in Topic 230 and other applicable Topics. In the absence of specific guidance, a reporting entity should determine each separately identifiable source (for inflows) or each separately identifiable use (for outflows) within the cash receipts and cash payments based on the nature of the underlying cash flows. A reporting entity should then classify in financing, investing, or operating activities the cash receipts and payments for each nature that was separately identified. In situations in which cash receipts and payments have aspects of more than one class of cash flows and those aspects cannot be separately identified by their nature, the appropriate classification should depend on the activity that is likely to be the predominant source or use of cash flows for the item.

The EITF also reached a consensus-for-exposure not to require specific disclosures when classification is based on the predominant cash flow.

The minutes of the November 12, 2015 EITF meeting, which will be posted to the FASB website the week of December 21, 2015, describe the consensus-for-exposure on Issue 15-F in detail.

The Board also approved the EITF's decision to address the Statement of Cash Flows subissue on Restricted Cash in a separate EITF Issue.


Financial statements of not-for-profit entities (phase 1). The Board discussed the following issues in Phase 1 of redeliberations for the proposed FASB Accounting Standards Update, Not-for-Profit Entities (Topic 958) and Health Care Entities (Topic 954): Presentation of Financial Statements of Not-for-Profit Entities (the proposed Update):
  1. Methods of presenting operating cash flows
  2. The net asset classification scheme and related issues
  3. Information useful in assessing liquidity.
Methods of Presenting Operating Cash Flows

The Board decided not to require not-for-profit entities (NFPs) to use the direct method of presenting operating cash flows, but instead to continue to allow them to use either the direct method or indirect method. Further, the Board decided to no longer require the indirect reconciliation if an NFP chooses to use the direct method.

Net Asset Classification Scheme and Related Issues

The Board made decisions on the following issues:
  1. Requirement of two classes of net assets
    1. The Board affirmed its proposal to combine temporarily and permanently restricted net assets into net assets with donor restrictions and to rename unrestricted net assets net assets without donor restrictions. Consistent with the proposed Update, this alternative would retain the current generally accepted accounting principles (GAAP) requirement to provide relevant information about the nature and amounts of donor restrictions on net assets (either on the face of the statement of financial position or in notes).
  2. Disclosure of amounts and purposes of board-designated net assets
    1. The Board affirmed its proposal to require the disclosure of the amounts and purposes of board-designated net assets either on the face of the financial statement or in the notes.
  3. Classification and disclosure of underwater endowments
    1. The Board affirmed its proposal to require that the aggregate amount by which endowment funds are underwater be classified within net assets with donor restrictions rather than the current unrestricted category.
    2. The Board decided to affirm its proposal for endowment funds that are underwater, if any, to require the disclosure of:
      1. The NFP’s policy to either reduce expenditure or not spend from underwater endowment funds
      2. The aggregate fair value
      3. The aggregate original endowment gift amount or level required by donor stipulations or by law to be maintained
      4. The aggregate of the amount of the deficiencies.
  4. Requirement of placed-in-service approach and elimination of over-time approach for expirations of restrictions to acquire or construct long-lived assets
    1. The Board affirmed its proposal to require, in the absence of explicit donor instructions, the placed-in-service approach for expirations of restrictions to acquire or construct long-lived assets, thus eliminating the over-time approach.
Information Useful in Assessing Liquidity

The Board discussed the proposal for providing qualitative and quantitative information useful for assessing liquidity and potential alternatives. The Board directed the staff to explore an approach that would require, like the proposal, qualitative information about how the NFP manages its liquidity and liquidity risks, but provide alternative ways of presenting quantitative information. This approach would emphasize information about assets that are liquid and available at the balance sheet date.