At its May 8, 2019, meeting, the FASB decided to add the following two projects to the Emerging Issues Task Force’s (EITF’s) technical agenda:

• Financial Instruments — Clarifying the Interactions Between Topic 321 and Topic 323.
• Revenue Recognition — Contract Modifications of Licenses of Intellectual Property.

Information on these two projects is provided below.¹

In addition, the Board decided to expand the scope of its active project, Improving the Accounting for Asset Acquisitions and Business Combinations (Phase 3 of the Definition of a Business Project), by adding the following issue:

• Subsequent Accounting for IPR&D Assets and Contingent Consideration Obligations Recognized Upon Initial Consolidation of a VIE That Is Not a Business.

Financial Instruments — Clarifying the Interactions Between Topic 321 and Topic 323

The Board decided to add three issues to the EITF’s agenda related to the interaction of guidance in ASC 321² and ASC 323. It is expected that the three issues will be discussed at the June 2019 EITF meeting, and will address the following:

• Issue 1 — The accounting for equity securities upon either the initial application or discontinuation of the equity method of accounting in ASC 323.
• Issue 2 — The recognition of an equity method investee’s losses that have resulted in a zero carrying value for the investor’s equity method investment, when the investor has additional investments in the investee that are not following the equity method of accounting.
• Issue 3 — The accounting for forward contracts and purchased call options on equity securities (that do not meet the definition of a derivative under ASC 815) that upon purchase will be accounted for under the equity method of accounting.

Revenue Recognition — Contract Modifications of Licenses of Intellectual Property

The Board discussed three issues related to contract modifications of licenses of intellectual property, but decided to add only Issue 1 and Issue 2 to the EITF’s technical agenda; the three issues address the following:

• Issue 1 — Accounting for contract modifications in which an additional right is added to the existing rights, and the contract term is extended.
• Issue 2 — Accounting for situations in which licensing rights are revoked, “including conversion of term software licenses to software as a service (SAAS) arrangements.”
• Issue 3 — “Determining when a contract termination should be accounted for as a contract modification.”

In addition, the Board discussed the formation of a working group to supplement its outreach to various stakeholders and assist the EITF in addressing the above issues. It is therefore expected that the June 2019 EITF meeting will be an educational rather than a decision-making meeting. As a result, decisions on these issues will not occur before the September 2019 EITF meeting.

____________________

1 See the meeting handout and summary of tentative Board decisions for full information on the topics discussed.

2 For titles of FASB Accounting Standards Codification (ASC) references, see Deloitte’s “Titles and Topics and Subtopics in the FASB Accounting Standard Codification.”