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.

Wednesday, February 13, 2019 FASB Board Meeting

Distinguishing liabilities from equity (including convertible debt). The Board deliberated disclosures for convertible instruments and decided to:
  1. Add disclosure objectives for convertible debt and for convertible preferred shares.
  2. Amend disclosure guidance related to certain terms and features of convertible instruments as follows:
    1. Add a disclosure requirement about events or changes in conditions/circumstances that occur during the reporting period and significantly affect the conversion conditions.
    2. Add a disclosure requirement to identify which party controls the pertinent rights and privileges under paragraph 505-10-50-3 of the various convertible securities outstanding.
    3. Align the disclosure requirements for contingently convertible instruments and other convertible instruments.
  3. Amend the guidance in Subtopic 825-10, Financial Instruments—Overall (which applies to public business entities) to require disclosure of information about fair value and leveling of convertible instruments at the individual instrument level together with the related carrying amount.
  4. Centralize guidance on convertible debt in Subtopic 470-20, Debt—Debt with Conversion and Other Options, and guidance on convertible preferred shares in Topic 505, Equity.
  5. Improve the format of disclosing certain quantitative information about convertible instruments, including:
    1. Basic information, such as principal amount, coupon rate, unamortized issuance cost and discount, net carrying amount, fair value amount, and maturity date at the instrument level
    2. Interest expense recognized for the period relating to both the contractual interest coupon and amortization of the discount and issuance cost
    3. Long-term debt (including convertible debt) maturities and sinking fund requirements for each of the five years following the date of the latest balance sheet presented.
The Board directed the staff to draft illustrative examples of both a tabular format disclosure and a narrative disclosure for the implementation guidance.
The Board deliberated improvements to the derivatives scope exception and decided to:
  1. Layer a probability threshold to existing guidance in Section 815-40-15, Derivatives and Hedging—Contracts in Entity’s Own Equity—Scope and Scope Exceptions. All existing guidance will remain; however, evaluating potential adjustments that are remote in occurring no longer will be required.
  2. Amend the settlement criteria in Section 815-40-25, Derivatives and Hedging—Contracts in Entity’s Own Equity—Recognition, by removing the following:
    1. Requirement to evaluate provisions that could require net cash settlement but are remote of occurring
    2. Condition regarding settlement in unregistered shares in paragraph 815-40-25-10(a)
    3. Collateral condition in paragraph 815-40-25-10(g)
    4. Shareholder rights condition in paragraph 815-40-25-10(f).
  3. Require entities to reassess classification on the occurrence of a triggering event. The Board directed the staff to ask a specific question in the proposed Update regarding requiring reassessments at annual reporting periods.
  4. Make three disclosure improvements in Subtopic 815-40:
    1. Add a disclosure objective for instruments that are within the scope of Subtopic 815-40
    2. Clarify the scope of the disclosures in Subtopic 815-40
    3. Require disclosure of triggering events that could cause a reclassification of a contract for disclosures under Section 815-40-50, Derivatives and Hedging—Contracts in Entity’s Own Equity—Disclosure.
  5. Not require fair value disclosure of equity-classified instruments. The Board directed the staff to ask a specific question in the proposed Update regarding fair value disclosures of equity-classified instruments.
The Board deliberated earnings per share and decided to:
  1. Require application of the if-converted method for all convertible instruments.
  2. Make a technical correction to paragraph 260-10-55-34 regarding year-to-date share calculation to correct the inconsistency between paragraphs 260-10-55-3 and 260-10-55-34.
  3. Remove an entity’s ability to overcome the presumption about share settlement for a contract that may be settled in either cash or shares.
The Board directed the staff to ask a specific question in the proposed Update regarding other potential improvements to the diluted earnings-per-share calculation.

Segment reporting. As part of developing the topics for a study on segment disclosures, the Board discussed an analysis of options to potentially improve how the management approach applies to the segment disclosure requirements.

The Board directed the staff to study how clarifying the meaning of regularly reviewed segment information would affect the pieces of information public entities report by segment. The Board also directed the staff to obtain feedback from users on this matter as a part of the study.

Next Steps

The Board will continue its consideration of which topics to include in the segment disclosure study.

Codification improvements—lessors.The Board redeliberated proposed Codification improvements to Topic 842, Leases. 
Issue 1: Determining the Fair Value of the Underlying Asset by Lessors That Are Not Manufacturers or Dealers 
The Board affirmed its decision that notwithstanding the definition of fair value in Topic 842 (which is the same as that in Topic 820, Fair Value Measurement), if a lessor is not a manufacturer or a dealer, the fair value of the underlying asset at lease commencement is its cost, reflecting any volume or trade discounts that may apply. However, if there has been a significant lapse of time between the acquisition of the underlying asset and lease commencement, the definition of fair value should be applied. This guidance is consistent with that provided in Topic 840, Leases. 
Issue 2: Presentation on the Statement of Cash Flows—Sales-Type and Direct Financing Leases  
The Board affirmed its decision that lessors that are depository and lending institutions within the scope of Topic 942 would present all “principal payments received under leases” within investing activities. 
Issue 3: Transition and Effective Date  
The Board affirmed the following for the amendments related to Issues 1 and 2. 
The effective date is for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years for any of the following: 
  1. A public business entity 
  2. A not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market 
  3. An employee benefit plan that files financial statements with the U.S. Securities and Exchange Commission. 
For all other entities, the effective date is for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.  
Early application is permitted. An entity should apply the amendments at the date that it first applied Topic 842, using the same transition methodology in accordance with paragraph 842-10-65-1(c). 
Issue 4: Lessor Collectibility Criteria 
The Board decided to not add a project to its technical agenda to reconsider the lessor collectibility requirements for sales-type leases in paragraph 842-30-25-3.   
Issue 5: Lessor Costs 
The Board clarified that costs paid directly by a sublessee to a head lessor for the right to use an underlying asset do not constitute lessor costs and, thus, are not accounted for in accordance with paragraph 842-10-15-40A.  Rather, those payments are accounted for by the sublessor as variable payments.   
Issue 6: Transition Disclosures Related to Topic 250, Accounting Changes and Error Corrections 
The Board decided to make a Codification improvement in the final Update to clarify that entities are not subject to the interim disclosure requirements in paragraph 250-10-50-3. 
Analysis of Costs and Benefits 
The Board concluded that it had received sufficient information and analysis to make an informed decision on the issues presented and that the expected benefits of the amendments justified the expected costs. 
Next Steps 
The Board directed the staff to draft a final Accounting Standards Update for vote by written ballot.