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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.
[11-A] [10-H] [10-G] [10-F] [10-E] [10-D] [10-A] [09-H] [09-D] [03-15]
Issue No. 11-A, "Parent's Accounting for the Cumulative Translation Adjustment upon the Sale or Transfer of a Group of Assets within a Consolidated Foreign Entity That Meets the Definition of a Business." When a parent enters into a transaction to sell or transfer to a third party a group of assets within a consolidated foreign subsidiary while retaining ownership of that foreign subsidiary, the group of assets sometimes constitutes a business as defined in Topic 805, Business Combinations.
Topic 830, Foreign Currency Matters, provides that the parent should apply Topic 810, Consolidation, to determine the appropriate accounting for the CTA. Under Subtopic 810-10, accounting for the CTA is dependent on whether the parent retains a controlling financial interest in the foreign subsidiary upon completion of the partial sale. If so, then the parent would account for the sale as an equity transaction under paragraph 810-10-45-23 and no gain or loss related to the transaction would be recognized in earnings.
If the parent does not retain a controlling financial interest, the parent would deconsolidate the foreign entity in accordance with paragraph 810-10-40-5 and record a gain or loss related to (a) the retained interest held by the parent in the foreign entity and (b) the equity interest that was sold. Upon deconsolidation, the parent would recognize the entire CTA balance related to the foreign subsidiary in earnings because the parent no longer has control.
The issue is whether, when an entity sells or transfers a group of assets within a foreign subsidiary that meets the definition of a business, the entity should (a) apply the guidance in Subtopic 810-10 and recognize a portion of the CTA associated with the disposed group of assets in earnings or (b) apply the guidance in paragraph 830-30-40-1 and only recognize the CTA in earnings if the sale or transfer constitutes a complete or substantially complete liquidation of the foreign subsidiary.
This issue applies to all entities that (a) have sold or transferred a group of assets within a consolidated foreign subsidiary that meets the definition of a business as contemplated in Topic 805, Business Combinations, and (b) have a CTA balance associated with that foreign subsidiary.
At the November 3, 2011 EITF meeting, the Task Force reached a consensus-for-exposure that upon the sale or transfer of a group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a consolidated foreign entity a parent should recognize a portion of the CTA associated with the disposed group of assets in earnings. Entities shall allocate the CTA in a systematic and rational manner that reflects an asset group’s relative portion of the CTA associated with the foreign entity.The consensus-for-exposure clarifies the guidance for the release of the CTA into earnings upon the loss of a controlling financial interest in a subsidiary (thereby, the substance of currently non-codified paragraph B53 of Statement 160 would be added to the Codification). Additionally, the current reference in Subtopic 830-30 to Subtopic 810-10 would be amended to cite the applicable paragraphs within Subtopic 810-10 (as opposed to the entire subtopic). The consensus-for-exposure does not require any additional recurring disclosures. The amendments proposed by the consensus-for-exposure would be applied on a prospective basis for derecognition events occurring after the effective date. Prior periods would not be adjusted. Earlier application would be permitted.
Date discussed: November 3, 2011.
At the November 30, 2011 meeting, the Board ratified the consensus-for-exposure reached by the Task Force in this Issue and approved the issuance of a proposed Update for a 60-day public comment period. This Issue will be discussed at a future meeting.
Issue No. 10-H, "Fees Paid to the Federal Government by Health Insurers." During its discussion of EITF Issue No. 10-D, "Fees Paid to the Federal Government by Pharmaceutical Manufacturers," at the November 19, 2010 meeting, the Task force considered requests from comment letter respondents to broaden the scope of Issue 10-D to include the accounting for fees to be paid by health insurers as required by the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (in combination, the Acts). The Task Force determined that adding a separate Issue to the EITF agenda to consider fees to be paid by health insurance entities was appropriate. Because the fees are not applicable until 2014, that decision would give stakeholders sufficient time to comment on any proposed guidance on the Issue. The acting FASB chairman, who was present at the EITF meeting, formally added Issue 10-H to the EITF agenda.
The Task Force agreed that the fee to be paid by health insurers should be accounted for in a manner similar to the fee to be paid by pharmaceutical manufacturers under the Act. The Task Force agreed that the liability for the fee should be estimated and recorded in full upon the first qualifying sale with a corresponding deferred cost that is amortized to expense using a straight-line method of allocation unless another method better allocates the fee over the calendar year that it is payable.
The Task Force reached a consensus-for-exposure that a health insurer should account for its portion of the fee to be paid as required by the Acts as a liability to be estimated and recorded in full upon the first qualifying sale with a corresponding deferred cost that is amortized to expense using a straight-line method of allocation unless another method better allocates the fee over the calendar year that it is payable. Additionally, the Task Force reached a consensus-for-exposure that the fee would not qualify as an acquisition cost.
Status: At its December 1, 2010 meeting, the Board ratified the consensus-for-exposure and approved the issuance of a proposed Update for a 120-day public comment period.
At the June 23, 2011 EITF meeting, the Task Force affirmed as a consensus its consensus-for-exposure that the annual fee should be estimated and recorded in full once the entity provides qualifying health insurance in the applicable calendar year in which the fee is payable, with a corresponding deferred cost that is amortized to expense using a straight-line method of allocation unless another method better allocates the fee over the calendar year that it is payable. The Task Force also affirmed as a consensus its consensus-for-exposure that the fee would not qualify as an acquisition cost.
At its July 13, 2011 meeting, the Board ratified the consensus reached by the Task Force on this Issue. No further EITF discussion is planned.
Dates discussed: September 16, 2010; November 19, 2010; June 23, 2011.
Issue No. 10-G, "Disclosure of Supplementary Pro Forma Information for Business Combinations." Topic 805, Business Combinations, requires public entities to disclose pro forma information for business combinations that occurred during the reporting period. Those disclosure requirements are also applicable for interim reporting periods, and are required to be presented in the financial statements for as long as the period of acquisition is included in the financial statements. Disclosures are required to be presented on an aggregate basis for individually immaterial business combinations occurring during a reporting period that are material collectively. Supplemental pro forma information is included in an unaudited note to the financial statements. If impracticable, the entity must disclose that fact.
Similar pro forma disclosure requirements were required under both APB Opinion No. 16, Business Combinations, and FASB Statement No. 141, Business Combinations. The SEC also requires its registrants to prepare pro forma financial information to be included in a Form 8-K for business combinations that are determined to meet a significance threshold as defined under Rules 1-02(w) and 305 of Regulation S-X.
Diversity exists about whether the pro forma financial information required to be disclosed under Topic 805 should be prepared as if the business combination occurred at the beginning of each of the current and prior annual periods, or only at the beginning of the prior annual period. Some believe that presenting pro forma results as if the business combination occurred at the beginning of each annual period inappropriately results in certain adjustments that impact pro forma earnings being included in the pro forma results of both reporting periods
The issue is whether, when comparative financial statements are presented, supplemental pro forma disclosures should be prepared assuming that the business combination occurred (a) at both the beginning of the current annual period for the current reporting period and the beginning of the prior annual period for the prior reporting period, or (b) at the beginning of the prior annual period for both reporting periods.
Status: At the September 16, 2010 meeting, the Task Force reached a consensus-for-exposure that if a public entity presents comparative financial statements, the entity shall disclose revenue and earnings of the combined entity as though the acquisition(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period, if presented.
The Task Force decided to retain the disclosure requirement to provide comparative pro forma disclosures because it is better aligned with the SEC's Form 8-K pro forma disclosure requirements under Article 11 of Regulation S-X as far as the acquisition date to be used is concerned.
The Task Force also decided to expand the supplemental pro forma disclosures under Topic 805 to include a narrative description of the nature and amount of material, nonrecurring pro forma adjustments because it believes that this disclosure provides useful information to users of financial statements. The Task Force decided not to pursue making other changes requested by users, such as requiring the disclosure of (a) pro forma pre-tax earnings, (b) pro forma gross or operating margins, or (c) pro forma cash flows from operations because those requests had already been deliberated by the Board in conjunction with the issuance of Statement 141(R).
The Task Force reached a consensus-for-exposure that the amendments resulting from this Issue should be applied prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption would be permitted.
At its September 29, 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 for a 30-day public comment period that will end on November 5, 2010.
At the November 19, 2010 EITF meeting, the Task Force discussed an inconsistency in the acquisition date used for the pro forma disclosure in the consensus-for-exposure when compared to Article 10 of Regulation S-X (interim financial statements) if comparable financial statements are presented. The SEC staff recognizes that the consensus diverges from Article 10 of Regulation S-X. However, the SEC staff will not object to registrants' application of Article 10 to their interim financial statements in a manner consistent with this consensus and is considering ways to update Article 10 of Regulation S-X to be consistent with the consensus.
The Task Force affirmed as a consensus that if a public entity presents comparative financial statements, the entity shall disclose revenue and earnings of the combined entity as though the acquisition(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period. In addition, the Task Force affirmed as a consensus that the supplemental disclosures would be expanded to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination.
The Task Force affirmed as a consensus that the amendments in the Update should be applied prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption would be permitted.
At its December 1, 2010 meeting, the Board ratified the consensus reached by the Task Force on this Issue. No further EITF discussion is planned.
Dates discussed: September 16, 2010; November 19, 2010.
Issue No. 10-F, "Health Care Entities: Accounting for Legal Costs Associated with Medical Malpractice Claims." This Issue originated as a sub-issue of EITF Issue No. 09-K, "Health Care Entities: Presentation of Insurance Claims and Related Insurance Recoveries." The issue is whether the industry-specific requirement that health care entities accrue legal costs related to litigating medical malpractice claims or similar claims before those costs are incurred should be eliminated.
In other industries, entities make an accounting policy election to either expense legal fees as incurred or accrue estimated legal fees when the associated claim is incurred (paragraph 450-20-S99-2). Some believe that guidance would benefit from eliminating an industry-specific exception for health care entities and aligning the accounting practices in that industry with Subtopic 450-20, Contingencies—Loss Contingencies.
Status: At the July 29, 2010 EITF meeting, the Task Force reached a consensus-for-exposure that health care entities should be allowed to make a policy election to expense legal fees as incurred or accrue estimated legal fees when the associated claim is incurred. The Task Force also agreed to include a question in the proposed Update about whether the accounting for the treatment of internal legal costs should be different from the accounting for the treatment of external legal costs. This Issue will be discussed at a future meeting.
At its August 18, 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 for a public comment period.
At the November 19, 2010 EITF meeting, the Task Force concluded that the lack of comparability between entities within the health care industry resulting from an accounting policy election was worse than any benefits from eliminating the industry-specific guidance. The Task Force decided to recommend that this Issue be removed from the EITF agenda and at the December 1, 2010 Board meeting, the acting FASB chairman affirmed the removal of this Issue from the EITF agenda. No further EITF discussion is planned.
Dates discussed: July 29, 2010; November 19, 2010.
Issue No. 10-E, "Derecognition of In Substance Real Estate." 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: At the September 16, 2010 EITF meeting, the Task Force discussed whether, in certain circumstances, Subtopics 360-20 and/or 810-10 apply to the derecognition of in-substance real estate, and the staff clarified various requirements, which were debated. The Task Force determined that more analysis and outreach should be performed from the lender's standpoint and directed the FASB staff to perform additional outreach to potentially affected lenders and further analyze the effect application of Subtopic 360-20 would have on lenders or transactions other than legal form sales or transfers.
At the November 19, 2010 EITF meeting, the Task Force reached a tentative conclusion that the reporting entity must apply the guidance in Subtopic 360-20 to determine whether it should derecognize real estate owned by an in-substance real estate subsidiary that the reporting entity is required to deconsolidate.
The Task Force also discussed whether Subtopics 810-10 and 360-20 should be applied to circumstances under which entities being evaluated for consolidation are considered in-substance real estate or whether those entities should be accounted for only in accordance with Subtopic 360-20.
The Task Force was concerned that the tentative conclusion may not be operable and requested that the staff perform additional research on the application of the proposed model based on the tentative conclusion with the assistance of a Working Group.
At the June 23, 2011 EITF meeting, the Task Force discussed the feedback provided by the EITF Issue No. 10-E Working Group. The Task Force decided to address only whether Subtopic 360-20 would apply to the loss of control of an in substance real estate entity when that loss of control is the result of default on the subsidiary’s nonrecourse debt in accordance with Subtopic 810-10. The Task Force reached a consensus-for-exposure that a parent should apply the guidance in Subtopic 360-20 to determine whether in substance real estate should be derecognized. The Task Force decided that a reporting entity should apply the guidance in Subtopic 360-20 to determine whether to derecognize real estate owned by the in substance real estate subsidiary. The Task Force noted the following: (a) the same derecognition requirements (Subtopic 360-20) should apply regardless of whether the real estate is owned directly by the reporting entity or indirectly through the reporting entity’s in substance real estate subsidiary, (b) Subtopic 360-10 requires a two-step impairment approach and does not permit the entity to consider the nonrecourse debt when evaluating the real estate asset for impairment, and (c) it would not be appropriate for the entity to derecognize the nonrecourse debt before it has been legally released from its obligation.
At the July 13, 2011 meeting, the Board ratified the consensus-for-exposure reached by the Task Force in this Issue and approved the issuance of a proposed Update for a 75-day public comment period.
At the November 3, 2011 EITF meeting, the Task Force reached a consensus that a parent that ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default by the subsidiary on its nonrecourse debt should apply the guidance in Subtopic 360-20 to determine whether to derecognize the in substance real estate. The consensus does not require any additional recurring disclosures. The consensus should be applied on a prospective basis to deconsolidation events occurring on or after the effective date. Prior periods should not be adjusted even if the reporting entity has continuing involvement with a previously deconsolidated in substance real estate entity. Earlier application is permitted. For public entities, the consensus will be effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2012. For nonpublic entities, the consensus will be effective for fiscal years ending after December 15, 2013, and interim and annual periods thereafter.
At the November 30, 2011 meeting, the Board ratified the consensus reached by the Task Force on this Issue.
Based on the Task Force recommendation and the comments received on the proposed Update, the FASB chairman decided to add a research project to the FASB agenda to explore when an entity that consists of a nonfinancial asset(s) should be accounted for as an in substance asset rather than as an entity. In consideration of this research project being added to the Board’s agenda, the Board decided to prohibit analogy to the amendments in the resulting Accounting Standards Update by a lender who obtains a controlling financial interest (as described in Subtopic 810-10) in a subsidiary that is in substance real estate as a result of default by the subsidiary on its nonrecourse debt.
No further EITF discussion is planned.
Dates discussed: July 29, 2010; September 16, 2010; November 19, 2010; June 23, 2011, November 3, 2011.
Issue No. 10-D, "Fees Paid to the Federal Government by Pharmaceutical Manufacturers." 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 issues are (1) how the annual fee imposed by the Acts should be classified in a reporting entity's income statement and (2) whether the annual fee should be expensed in its entirety when the liability is recognized or whether an asset should be recognized and amortized over the calendar year.
Status: At the July 29, 2010 EITF meeting, some Task Force members suggested that an accounting policy election may be the most appropriate manner in which to address the presentation of the fee due to concerns about the impact of this Issue on the accounting for other similar fees paid to governmental entities. Other Task Force members stated that they believe that the fee should be treated similar to a payment to a customer, while others indicated that they believe that the substance of the fee was more similar to a cost of doing business in the year the fee was levied or a tax in the year the fee was levied. The Task Force concluded that there was sufficient benefit to users of the financial statements such that the fee should be treated consistently by the industry, which would not result if an option was provided. The Task Force reached a consensus-for-exposure that the annual fee should be presented as an operating expense. The Task Force reached a consensus-for-exposure that upon recognition of the liability, the annual fee should be recognized over the benefit period using a straight-line method of allocation unless another method better allocates the fee over the period of benefit. At the August 18, 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 for a public comment period.
At the November 19, 2010 EITF meeting, the Task Force affirmed as a consensus that the annual fee should be presented as an operating expense. The Task Force also affirmed as a consensus that the liability for the fee should be estimated and recorded in full upon the first qualifying sale with a corresponding deferred cost that is amortized to expense using a straight-line method of allocation unless another method better allocates the fee over the calendar year that it is payable.
The Task Force observed that entities are not required to reevaluate their existing policies related to similar fees assessed by governmental authorities. The consensus was based on the unique facts and circumstances of the fee to be paid by pharmaceutical manufacturers; accordingly, entities should apply judgment when evaluating the facts and circumstances of other fee arrangements before analogizing to the consensus reached in this Issue.
The Task Force discussed comment letters submitted by health insurers requesting that the scope be expanded to include fees to be paid under the Acts by health insurers. The Task Force discussed expanding the scope and determined that adding a separate Issue to the EITF agenda to consider the fees paid by health insurance entities was appropriate. The acting FASB chairman, who was present at the EITF meeting, formally added EITF Issue No. 10-H, "Fees Paid to the Federal Government by Health Insurers," to the EITF Agenda.
The Task Force affirmed as a consensus that no additional recurring disclosure requirement should be provided for this Issue.
The Task Force affirmed as a consensus that the amendments in the Update are effective for calendar years beginning after December 31, 2010.
At the December 1, 2010 meeting, the Board ratified the consensus reached by the Task Force on this Issue. No further EITF discussion is planned.
Dates discussed: July 29, 2010; November 19, 2010.
Issue No. 10-A, "When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts." 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: At the September 16, 2010 EITF meeting, the Task Force reached a consensus-for-exposure on View A'' (specify that Step 1 of the test is to be performed using an Equity premise but require Step 2 to be performed if there are qualitative factors such as those in paragraph 350-20-35-30 that indicate that it is more likely than not that a goodwill impairment exists). The impairment triggers to perform Step 2 should be considered throughout a reporting entity's fiscal year rather than solely at the time of the annual impairment test.
The Task Force reached a consensus-for-exposure on transition under which upon adoption, if the carrying value of the reporting unit as determined by the equity premise is zero or negative, the reporting entity must perform Step 2 of the goodwill impairment test if it is more likely than not that goodwill is impaired as of the date of adoption.
The Task Force reached a consensus-for-exposure that the amendments resulting from this Issue should be effective for interim and annual reporting periods in fiscal years beginning after December 15, 2010.
The Task Force reached a consensus-for-exposure to defer the effective date for nonpublic entities until interim and annual reporting periods in fiscal years beginning after December 15, 2011, to provide nonpublic entities with more time to understand and evaluate the effects of adopting the amendments. However, the Task Force also reached a consensus-for-exposure that nonpublic entities should be allowed to early adopt using the effective date for public companies. Early adoption would not be permitted for public reporting entities.
At its September 29, 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 for a 30-day public comment period that will end on November 5, 2010.
At the November 19, 2010 EITF meeting, the Task Force reached a consensus that regardless of the method of calculating its carrying amount, a reporting unit with zero or negative carrying amounts must perform Step 2 of the goodwill impairment test if, in combination with consideration of qualitative factors, it is more likely than not that a goodwill impairment exists.
The Task Force determined that the selection of the appropriate method for use with a particular reporting unit should be based on the facts and circumstances. However, the fair value of the reporting unit should be determined consistently with the manner in which its assets and liabilities are included in determining the carrying amount of the reporting unit.
The Task Force affirmed as a consensus the FASB staff's recommendation that no additional recurring disclosures be included as a result of this Issue.
The Task Force affirmed as a consensus the following approach for transition: Upon adoption, if the carrying value of the reporting unit is zero or negative, the reporting entity must perform Step 2 of the goodwill impairment test if it is more likely than not that goodwill is impaired as of the date of adoption.
The Task Force reached a consensus that any goodwill impairment recognized upon adoption of the amendments in the Update resulting from this Issue should be presented as a cumulative-effect adjustment to beginning retained earnings of the period of adoption reflecting a change in accounting principle.
The Task Force affirmed as a consensus that the amendments should be effective for public companies for interim and annual reporting periods in fiscal years beginning after December 15, 2010.
The Task Force affirmed as a consensus that the effective date of the amendments is deferred for nonpublic entities to interim and annual reporting periods in fiscal years beginning after December 15, 2011. The Task Force also affirmed as a consensus that nonpublic entities should be allowed to early adopt using the effective date for public companies. Early adoption is not permitted for public reporting entities.
At the December 1, 2010 meeting, the Board ratified the consensus reached by the Task Force on this Issue. No further EITF discussion is planned.
Dates discussed: July 29, 2010; September 16, 2010; November 19, 2010.
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 collectability must be reasonably assured prior to a health care entity recognizing revenue.
Status: At the September 16, 2010 EITF meeting, the Task Force reached a consensus-for-exposure that a health care entity should disclose (a) its policy for considering collectability in the timing and amount of revenue and bad debt expense recognized, (b) its net revenues by major payor sources of revenue (identified by the entity, consistent with how it manages its business) and (c) a tabular reconciliation, describing the activity in the allowance for doubtful accounts for the period, by major payor sources of revenue.
The Task Force reached a consensus-for-exposure that the disclosures resulting from this Issue would be required on an interim and annual reporting basis and that those disclosures would be required to be provided retrospectively for all periods presented.
At its September 29, 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 for a 30-day public comment period that will end on November 5, 2010.
At the November 19, 2010 EITF meeting, the Task Force decided to retain the existing revenue recognition model for health care entities and reached a consensus that those entities should present the provision for bad debts as a component of net patient revenues within the revenue section of their statement of operations.
The Task Force reached a consensus that a health care entity should disclose all of the following, by major payor sources of patient revenue (a) its policy for considering collectability in the timing and amount of revenue and bad debt expense recognized, (b) patient service revenue (net of contractual allowances and discounts) before any provision for bad debts, and (c) a tabular reconciliation, describing the activity in the allowance for uncollectible accounts for the period.
The Task Force affirmed as a consensus its consensus-for-exposure that the disclosures resulting from this Issue would be required on an interim and annual reporting basis.
The Task Force reached a consensus that health care entities should apply the provisions of the Update related to the presentation of bad debt expense in the statement of operations retrospectively and the provisions related to the new disclosure requirements prospectively.
The Task Force also reached a consensus that for public entities, the Update would be effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2010, with early adoption allowed. For private entities, the Update would be effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2011, with early adoption allowed.
At the December 1, 2010 meeting, the Board ratified the consensus reached by the Task Force on this Issue. However, at its December 8, 2010 meeting, the Board reconsidered its decision to ratify the consensus and decided because of concerns raised by some constituents about the potential effects and implementation issues that may arise as a result of that consensus to reexpose the proposed Update for a public comment period.
At the June 23, 2011 EITF meeting, the Task Force discussed the second proposed Update and decided that the scope of this Issue should be limited to patient service revenue. The Task Force reached a consensus that a health care entity that recognizes significant amounts of patient service revenue at the time the services are rendered even though the entity does not assess the patient’s ability to pay should present the provision for bad debts related to patient service revenue as a deduction from revenue (net of contractual allowances and discounts) in the statement of operations
The Task Force affirmed as a consensus the consensus-for-exposure that a health care entity that recognizes significant amounts of patient service revenue at the time the services are rendered even though it does not assess the patient’s ability to pay, should disclose, by major payor source of revenue, (a) its policy for assessing the timing and amount of uncollectible revenue recognized as bad debts, (b) its policy for assessing collectibility in determining the timing and amount of patient service revenue (net of contractual allowances and discounts) to be recognized, and (c) its patient service revenue (net of contractual allowances and discounts) before any provision for bad debts.
The Task Force also reached a consensus that a health care entity should provide qualitative and quantitative information about significant changes in its allowance for doubtful accounts related to patient accounts receivable.
At its July 13, 2011 meeting, the Board ratified the consensus reached by the Task Force on this Issue. No further EITF discussion is planned.
Dates discussed: March 18, 2010; July 29, 2010; September 16, 2010; November 19, 2010; June 23, 2011.
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. 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.