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, June 27, 2018 FASB Board Meeting
Consolidation reorganization and targeted improvements. The Board discussed comment letter feedback received on its proposed Accounting Standards Update, Consolidation (Topic 812): Reorganization. The Board decided to continue its existing project to reorganize Topic 810, Consolidation. The Board instructed the staff to develop nonauthoritative educational material to address the more difficult parts of consolidation guidance with the goal of supporting and supplementing the reorganized authoritative consolidation guidance.
Ratification of EITF consensus. The Board ratified the consensus reached at the June 7, 2018 EITF meeting on the following EITF Issue. The Board directed the staff to draft an Accounting Standards Update finalizing the consensus for vote by written ballot.
Issue No. 17-A, “Customer’s Accounting for Implementation, Setup, and Other Upfront Costs (Implementation Costs) Incurred in a Cloud Computing Arrangement That Is Considered a Service Contract"
The Task Force reached a consensus that requires the capitalization of implementation costs of a hosting arrangement that is a service contract based on the guidance in Subtopic 350-40. The Task Force decided that an entity should record the expense related to the capitalized implementation costs in the same line item in the statement of income as the expense for the fees for the hosting arrangement. In addition, the Task Force decided that an entity should present the capitalized implementation costs in the same line item that a prepayment for fees of the associated hosting arrangement would be presented, and an entity should classify the cash flows from capitalized implementation costs in the same manner as the cash flows for the fees paid for the associated hosting arrangement.
The Task Force reached a consensus to require entities to expense the capitalized implementation costs over the term of the hosting arrangement, which includes renewal options that are reasonably certain to be exercised.
The Task Force reached a consensus to clarify how to account for impairment and abandonment of capitalized implementation costs for a hosting arrangement that is a service contract by requiring an entity to apply the guidance in Subtopic 350-40 (which references the impairment model in Subtopic 360-10 on property, plant, and equipment). The Task Force also decided to clarify that an entity is required to evaluate the capitalized implementation costs of each module or component of a hosting arrangement that is a service contract for abandonment.
The Task Force reached a consensus to amend the definition of a hosting arrangement to remove the reference to licensing and the requirement that the software application resides on the vendor’s or a third party’s hardware. Certain other minor amendments to the definition were also made, such as changing “take possession” to “currently have possession” and eliminating the phrase “over the internet or via a dedicated line.”
The Task Force reached a consensus that the existing disclosures in paragraph 350-40-50-1 are sufficient to provide information to users about implementation costs of a hosting arrangement that is a service contract, supplemented by a description of the nature of an entity’s hosting arrangements that are service contracts.
Effective Data and Transition
The Task Force reached a consensus to allow entities to choose between prospective and retrospective transition when adopting the amendments in the Update resulting from this Issue. Under prospective transition, an entity will apply the amendments to any costs for implementation activities performed after the date of adoption. The Task Force also reached a consensus to require different transition disclosure requirements depending on the transition method elected.
The Task Force reached a consensus to require that the amendments in the Update resulting from this Issue be effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019, for public business entities. For all other entities, the amendments are effective for annual periods beginning after December 15, 2020, and interim periods beginning after December 15, 2021. The Task Force also reached a consensus to permit early adoption.
Ratification of EITF consensus-for-exposure. The Board ratified the consensus-for-exposure reached at the June 7, 2018 EITF meeting on the following EITF Issue. The Board directed the staff to draft a proposed Update reflecting the consensus-for-exposure for vote by written ballot.
Issue No. 18-A, “Recognition under Topic 805 for an Assumed Liability in a Revenue Contract”
The Task Force reached a consensus-for-exposure that would require an entity to use the Topic 606 performance obligation definition to determine whether an assumed contract liability from a revenue contract with a customer represents an identifiable liability that is recognized in a business combination at the acquisition date.
The Task Force reached a consensus-for-exposure that it would be inappropriate for an acquirer to use a carryover basis for the measurement of an assumed contract liability in a revenue contract (that is, recording the liability on the acquirer’s balance sheet equal to the amount of the contract liability on the acquiree’s balance sheet immediately preceding the business combination date). The Task Force also reached a consensus-for-exposure that an acquirer would consider the assets and liabilities in the acquired set when determining the fair value of an assumed contract liability.
The Board decided to expose the proposed Update for public comment for a period of 30 days.
Conceptual framework—elements. The Board discussed application issues associated with the agreed-upon tentative definition of a liability. The Board decided that:
- The requirement to have a present obligation adequately distinguishes business risks from liabilities.
- The present description of constructive obligations provides an adequate basis to reach standards-level conclusions related to constructive obligations.
- The term stand-ready obligation should not be used and the concepts should explain that there are present obligations with an uncertain outcome. The Board also agreed that present obligations with an uncertain outcome do not result from engaging in business activities absent a law or contract establishing such an obligation or the entity creating such an obligation consistent with other constructive obligations.