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.
Simplifying the balance sheet classification of debt. The Board discussed recent stakeholder feedback and made the following decisions on the project direction and other issues.
The Board affirmed its plan to move forward to a proposed Update that includes a debt classification principle based on legal terms. The proposed Update would include an exception for the classification of debt with waivers of debt covenant violations received after the reporting date but before financial statement issuance.
The Board affirmed its prior decision to require separate line-item presentation for debt that is classified as a noncurrent liability as a result of an exception for waivers of debt covenant violations received after the reporting date but before financial statement issuance.
The Board decided not to change current GAAP on the recognition of fees paid by a company for waivers of debt covenant violations.
Waivers of Debt Covenant Violations—Probability Assessment
The Board affirmed its decision to retain the probability assessment in current GAAP for waivers of debt covenant violations. The Board directed the staff to modify the existing guidance on the assessment that a company would be required to make when a debt covenant is violated at the reporting date and a waiver is obtained after the reporting date for a period greater than 12 months. The clarification would require an entity to assess whether violation of any other covenants (not covered by the waiver) is probable within 12 months from the reporting date. If probable, the related debt would be required to be classified as current.
The Board decided to require disclosure of subjective acceleration clauses and loan covenants when they are triggered.
The Board affirmed its decision to require an entity to apply the changes resulting from this project on a prospective basis to all debt that exists as of the effective date. The Board decided that an entity would be able to early adopt the proposed changes.
The Board directed the staff to draft a proposed Accounting Standards Update for vote by written ballot. The Board extended the comment period from 60 days to end no earlier than Friday, May 5, 2017.
Technical corrections and improvements—Update 2014-09, Revenue from Contracts with Customers. The Board met and redeliberated its September 2016 and May 2016 proposed Accounting Standards Updates on technical corrections and improvements to Update No. 2014-09, Revenue from Contracts with Customers (Topic 606).
Amendments in the September 2016 Proposed Update
The Board affirmed the following:
- Amend the guidance in Topic 310, Receivables, and Topic 942, Financial Services—Depository and Lending, to clarify that financial guarantees within the scope of Topic 460, Guarantees, are excluded from the scope of Topic 606.
- Amend Example 38, Case B, Contract Liability and Receivable—Noncancellable Contract, in Topic 606 to improve the alignment of the example with the presentation guidance in paragraph 606-10-45-4.
- Remove the reference to contract liability in Example 40, Receivable Recognized for the Entity’s Performance, in Topic 606.
- Reinstate the guidance on accrual of advertising costs in paragraph 340-20-25-2.
The Board affirmed the following:
- Amend paragraphs 606-10-50-14A through 50-14B to provide an additional practical expedient for the series provision and royalties on licenses of intellectual property as it relates to the disclosure of transaction price allocated to remaining performance obligations.
- Amend paragraph 606-10-50-15 to include disclosure of the nature, the remaining contract duration, and a description of variable consideration for the performance obligations in which a practical expedient has been applied.
- Relocate guidance in paragraph 606-10-50-8(c) on disclosure of revenue recognized from performance obligations satisfied in previous periods to a new paragraph within Topic 606.
- Remove the amendments to the guidance in Subtopic 340-10, Other Assets and Deferred Costs—Overall, on preproduction costs related to long-term supply arrangements from this project.
Board directed the staff to draft a final Accounting Standards Update for vote by written ballot.
Technical corrections and improvements. The Board discussed comments received on its April 2016 proposed Accounting Standards Update, Technical Corrections and Improvements, and made the following decisions. The Board also decided to proceed with drafting a final Accounting Standards Update for vote by written ballot.
The Board affirmed its decision to require that an entity disclose when it makes a change in either or both a valuation approach and a valuation technique.
The Board decided to expose for public comment a technical correction related to Accounting Standards Update No. 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities. The minor amendment on endowment accounting will have a 15-day comment period.
Transition Guidance and Effective Date
The Board decided on a prospective-only application for five of the six identified proposed amendments, with early adoption permitted, and an effective date of December 15, 2016, for public entities and December 15, 2017, for private companies. The remaining amendment, which is related to Accounting Standards Update No. 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, will be required to follow the same transition guidance as in Update 2015-05, with an effective date of December 15, 2016, for public entities and December 15, 2017, for private companies.