Project Update

EITF Issue No. 15-B: Recognition of Breakage for Prepaid Stored-Value Products

Last updated on March 24, 2016. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.

(Updated sections are indicated with an asterisk *)


The staff has prepared this summary of Board decisions for information purposes only. Those Board decisions are tentative and do not change current accounting. Official positions of the FASB are determined only after extensive due process and deliberations.

*Project Objective and Background
*Due Process Documents
Decisions Reached at Last Meeting
EITF/Board Meeting Dates
Contact Information

*Project Objective and Background

Prepaid stored-value products are products in physical and digital forms with stored monetary values that are issued for the purpose of being commonly accepted as payment for goods or services. While the holder of a prepaid stored-value product also may be permitted to redeem the product for cash, prepaid stored-value products are not only redeemable for cash by the product holder. When an entity sells a prepaid stored-value product that is redeemable at a third-party merchant (or merchants), it recognizes a liability for its obligation to provide the product holder with the ability to purchase goods or services at that third-party merchant (or merchants). When the product holder redeems the prepaid stored-value product, the entity’s liability (or part of that liability) to the product holder is extinguished. At the same time, the entity incurs a liability to the merchant that provided the goods or services. That liability is typically extinguished with cash through a settlement process. However, in some cases, a prepaid stored-value product may be unused wholly or partially for an indefinite time period.

Some entities support the view that an entity’s liability that exists after the entity sells a prepaid stored-value product to its product holder prior to when the product holder redeems the prepaid stored-value product (prepaid stored-value product liability) is a financial liability. Other entities support the view that a prepaid stored-value product liability is a nonfinancial liability. Although Subtopic 405-20, Liabilities—Extinguishments of Liabilities, includes derecognition guidance for both financial liabilities and nonfinancial liabilities, there currently is diversity in the methodology used to derecognize the portion of the dollar value of prepaid stored-value products that ultimately is unredeemed (that is, breakage).

Topic 606, Revenue from Contracts with Customers, includes authoritative breakage guidance. However, financial liabilities are excluded from the scope of Topic 606 and Topic 606 is not yet effective.

The objective of this project is to address the current and potential future diversity in practice related to the derecognition of a prepaid stored-value product liability.

*Due Process Documents

On April 30, 2015, the Board issued proposed Accounting Standards Update, Liabilities—Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Cards. The comment deadline was June 29, 2015. On March 8, 2016, the Board completed this project with the issuance of Accounting Standards Update No. 2016-04, Liabilities—Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products.

Decisions Reached at Last Meeting (December 11, 2015)

The Board ratified the consensus reached at the November 12, 2015 EITF Meeting. The Board directed the staff to draft an Accounting Standards Update finalizing the consensus for vote by written ballot.

The EITF reached a consensus that an entity’s liability for a prepaid stored-value product is a financial liability within the scope of Subtopic 405-20. However, the EITF agreed that it is appropriate to provide a narrow scope exception to the derecognition guidance in Subtopic 405-20 to require that breakage for those liabilities be accounted for in a manner consistent with the breakage guidance in Topic 606.

The EITF also reached a consensus that a technical correction to the guidance in Subtopic 405-20 should be made to acknowledge the existence of other derecognition guidance in GAAP.

EITF/Board Meeting Dates

The EITF and Board meeting minutes are provided for the information and convenience of constituents who want to follow the EITF’s and the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future EITF or Board meetings. Decisions become final only after a formal written ballot to issue a final standard.

Meeting Date Meeting Materials
December 11, 2015
Board Meeting
EITF Ratification Minutes
 
November 12, 2015
EITF Meeting
EITF Meeting Minutes
Issue Summary
September 17, 2015
EITF Meeting
EITF Meeting Minutes
Issue Summary
April 7, 2015
Board Meeting
EITF Ratification Minutes
March 19, 2015
EITF Meeting
EITF Meeting Minutes
Issue Summary
November 5, 2014
Board Meeting
 
Agenda Prioritization Minutes

Contact Information

Mark Pollock
EITF Coordinator
mapollock@fasb.org

Mark Barton
Practice Fellow
mfbarton@fasb.org

Alexis Tanoue
Postgraduate Technical Assistant
actanoue@fasb.org