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, July 22, 2020 FASB Board Meeting

Revenue recognition—practical expedient for private company franchisors. The Board discussed an implementation issue in the franchisor industry related to Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). The Board decided to:
  1. Add a project to its technical agenda to reduce the implementation costs related to applying Topic 606 to initial franchise fees for franchisors that are not public business entities. A franchisor that is not a public business entity may elect the practical expedient to account for initial services as a single performance obligation if:
    1. Those services are the same as those included in a pre-defined list of services.
    2. It is probable that the continuing fee will cover the cost of the continuing services provided by the franchisor with a reasonable profit.
  2. Include the practical expedient for applying Topic 606 to initial franchise fees for franchisors that are not public business entities within Topic 952, Franchisors.
  3. Require an entity that elects the practical expedient to disclose that fact.
  4. Include implementation guidance by providing separate examples that illustrate the application of Topic 606 for franchisors that are not public business entities that:
    1. Do not elect the practical expedient
    2. Elect the practical expedient.
Transition and Effective Date

The Board decided that:
  1. Entities that have not yet adopted Topic 606 should apply the existing transition provisions in paragraph 606-10-65-1.
  2. Entities that previously adopted Topic 606 should apply a full retrospective method of transition. The full retrospective method of transition would include the entity's first reporting period under Topic 606.  For those entities, the Board decided that the amendments should be effective for annual reporting periods beginning after December 15, 2020, including interim reporting periods within that reporting period, with early application permitted. The Board also decided that the transition disclosures in Topic 250, Accounting Changes and Error Corrections, should be required.
Comment Period of the Proposed Accounting Standards Update

The Board decided to provide a 45-day comment period for the proposed Update.

Next Steps

The Board directed the staff to draft a proposed Accounting Standards Update for vote by written ballot.

Accounting by a joint venture for nonmonetary assets contributed by investors. The Board continued its initial deliberations on the project. The Board discussed the measurement alternatives and the staff’s recent research.

The Board decided to:
  1. Retain the definition of joint venture as it currently appears in the Master Glossary of the Codification.
  2. Require that a joint venture, upon formation, account for contributions by the venturers as though the joint venture was the acquirer of a business within the scope of Subtopic 805-10, Business Combinations—Overall. That Subtopic requires that the acquirer recognize and measure the identifiable assets acquired and liabilities assumed at fair value (with certain exceptions).
  3. Expand the scope of the project to include all contributions, irrespective of whether they are monetary or nonmonetary.
  4. Require that a joint venture apply guidance that is similar to the guidance in Topic 805 when measuring assets and liabilities at fair value upon formation as follows:
    1. A joint venture can be formed using a newly created legal entity or a former subsidiary.
    2. A joint venture would apply the fresh-start method, which would be equivalent to identifying a newly formed joint venture as the acquirer. The joint venture would be required to recognize and measure the net assets contributed to it upon formation.
    3. A joint venture would recognize and measure identifiable assets and liabilities in accordance with Subtopic 805-20, Business Combinations—Identifiable Assets and Liabilities, and Any Noncontrolling Interest, including exceptions to the fair value measurement principle, and would recognize goodwill (if any) in accordance with Subtopic 805-30, Business Combinations—Goodwill or Gain from Bargain Purchase, Including Consideration Transferred. The newly formed joint venture would be required to apply Subtopics 805-20 and 805-30 regardless of whether it meets the definition of a business.
  5. Develop guidance for formation date and formation by leveraging existing guidance in Topic 805 for acquisition date and in Topic 810, Consolidation, for when multiple arrangements should be accounted for as a single transaction.
Next Steps

The staff will present any remaining sweep issues, disclosures, and transition at a future meeting.