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, August 4, 2021 FASB Board Meeting
FASB endorsement on Private Company Council (PCC) consensus. The Board endorsed the PCC’s consensus reached at its June 22, 2021 meeting on Issue No. 2018-01, “Practical Expedient to Measure Grant-Date Fair Value of Equity-Classified Share-Based Awards,” and decided to issue a final Accounting Standards Update.
Endorsement of PCC’s Consensus
The Board endorsed the PCC’s consensus to issue a final Update for a practical expedient for a private company to determine the current price input of equity-classified share-based awards issued to both employees and nonemployees. That consensus describes the characteristics of a reasonable application of a reasonable valuation method using the same description provided within the Treasury Regulations related to Section 409A of the U.S. Internal Revenue Code as of the issuance date of a final Update.
The PCC consensus endorsed by the Board also included decisions on the scope, application, disclosure, transition, and effective date of the practical expedient.
Specifically, the PCC decided that a nonpublic entity would be permitted to elect the practical expedient for equity-classified share-based awards issued to both employees and nonemployees granted or modified during fiscal years beginning on or after December 15, 2021, and interim periods in the following year. Early adoption, including adoption within an interim period, would be permitted for financial statements that have not yet been issued or made available for issuance as of the issuance date of the final Update.
The PCC also decided that if a nonpublic entity were to elect the practical expedient, the entity would be required to:
- Apply the practical expedient on a measurement-date-by-measurement-date basis
- Apply the practical expedient using a prospective transition method
- Disclose that it has applied the practical expedient.
The Board directed the staff to draft a final Accounting Standards Update for vote by written ballot.
Joint venture formations. The Board continued its initial deliberations on the project. The Board discussed areas in which equity method basis differences could result from a misalignment between (1) the initial accounting by the venturer for its equity method investment in a joint venture entity and (2) the joint venture entity’s accounting for its formation in applying the Board’s tentative decisions on this project.
The Board decided not to expand the scope and objective of the project to include eliminating sources of venturer basis differences. Therefore, the project will retain its current objectives, which are to (1) reduce diversity in practice in the accounting for contributions made to a joint venture upon formation in a standalone joint venture’s financial statements and (2) provide useful financial reporting information to financial statement users.
Additionally, the Board decided that the expected benefits of requiring a joint venture to initially recognize and measure the contribution of net assets at fair value in its financial statements at formation (under the Board’s tentative decisions to date) would justify the expected costs.
The staff will present research and analysis at a future meeting on (1) whether a joint venture should apply the measurement period guidance in accordance with Subtopic 805-10, Business Combinations—Overall, which allows an entity to recognize and adjust provisional amounts for items for which the accounting is incomplete, (2) disclosure requirements for a joint venture upon formation, and (3) any other sweep issues.