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Highlights from the FASB’s December 16-17 meeting

  • FASB meeting Image

Dec 19, 2014

At its December 16–17, 2014, meeting, the FASB discussed its projects on (1) the conceptual framework, (2) employee share-based payments, (3) the measurement of inventory, (4) the definition of a business, and (5) government assistance disclosures. In addition, the FASB jointly discussed leases with the IASB.

 

Conceptual framework

The FASB discussed how to separate liabilities into concepts for establishing standards for determining changes in carrying amounts. In particular, the Board identified three liability concepts: (1) fixed amounts and timings, (2) liabilities with variable amounts or variable amounts and timings, and (3) liabilities with fixed amounts and variable timings.

In addition, the Board tentatively decided to focus on line items in developing standards for presentation in financial statements. Further, the Board tentatively decided that “the activity from which (or within which) the recognized item resulted is the primary factor for identifying useful subtotals in an income statement and that the timing of realization or settlement is the primary factor in identifying useful subtotals on the balance sheet.”

For more in­for­ma­tion, see the meeting minutes on the FASB’s Web site.

 

Improving employee share-based payment accounting

The FASB tentatively decided:

  • To allow private companies to use the simplified method to estimate the expected term for awards when it is probable that the awards’ service conditions or performance conditions will be met. If it is not probable that an award’s performance conditions will be met, private entities applying the practicable expedient would use the award’s contractual term as the estimate for the expected term.
  • To align the classification guidance on put and call rights that are contingent on an event that is within an employee’s control.
  • To allow private companies make a one-time election to switch from fair value to intrinsic value measurement for share-based payment awards classified as liabilities.
  • To apply the existing and proposed practical expedients in ASC 718 for entities that meet the current definition in ASC 718 of a “public entity” rather than the definition of a “public business entity” in the FASB Accounting Standards Codification Master Glossary.

For more in­for­ma­tion, see the related Deloitte Accounting Journal entry as well as the meeting minutes on the FASB’s Web site.

 

Simplifying the subsequent measurement of inventory

The FASB discussed comments it received on its proposed Accounting Standards Update, Inventory, and ten­ta­tively decided to retain the project’s current scope (i.e., focus on the measurement of inventory impairment). It instructed its staff to perform additional research and analysis on how the concepts in the proposal can be applied by entities that use the LIFO and RIM inventory methods.

For more in­for­ma­tion, see the related Deloitte Accounting Journal entry as well as the meeting minutes on the FASB’s Web site.

 

Definition of a business

As part of considering potential amendments to the definition of a business, the FASB decided to continue to explore what processes must be included in a transaction. The Board tentatively decided:

  • “That a business must include inputs and one or more substantive processes that together contribute to the creation of outputs.”
  • To retain the notion of “capable” in the definition of a business and instructed the staff explore revising the definition of “outputs.”
  • To retain the market-participant concept in the definition of a business but to ask the staff to provide clarifying guidance on how to analyze an acquisition from a market-participant perspective.

In addition, the FASB asked the staff to explore the possibility of adding a de minimis or similar threshold to the definition of a business as well as the factors an entity would consider in making its assessment.  

For more in­for­ma­tion, see the related Deloitte Accounting Journal entry as well as the meeting minutes on the FASB’s Web site.

 

Government assistance disclosures

The FASB ten­ta­tively decided to require disclosure of arrangements “that are the result of a contract in which the entity receives value or benefit from the government.” However, the requirements would not apply to either of the following:

  • “Assistance received from a government as the result of law entitling an entity to receive value or benefits simply by meeting eligibility requirements.”
  • “Transactions between an entity and a government in which the government is a customer. If a contract has multiple components, only components of the contract in which the government is a customer would be exempt from disclosure requirements.”

Also, the Board tentatively decided that transactions would not be excluded if the government participates in the ownership of an entity and the arrangement is “the result of a contract in which the entity receives value or benefit from the government.”

For more in­for­ma­tion, see the meeting minutes on the FASB’s Web site.

 

Leases

The FASB and IASB continued redeliberating their revisions to lease accounting guidance and tentatively decided to retain the approach from the May 2013 proposal for evaluating whether a customer has obtained, or has the ability to obtain, substantially all of the economic benefits from directing the use of the underlying asset. That is, the final leases standard would not include a requirement that for a contract to be a lease, the customer must be able to derive the economic benefits from directing the use of an identified asset on its own or together with other resources that are readily available to the customer. As a result, a customer would control the use of an asset if it directs the use of the asset (i.e., directs how and for what purpose the asset is used) and has the right to obtain substantially all the economic benefits from directing the use of the asset during the period of use.

For more in­for­ma­tion, see the related Deloitte Accounting Journal entry as well as the meeting minutes on the FASB’s Web site.

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