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 29, 2020 FASB Board Meeting
Agenda prioritization. The Board discussed the results of staff research and outreach on eight potential projects related to recent agenda requests and other implementation requests.
The Board decided to add a targeted improvements project for Topic 842, Leases, to its technical agenda to address the following issues:
- Sales-type leases with substantial variable lease payments
- Remeasurement of lease payments based on a reference index or rate
- Reduction of scope in a lease contract.
The Board decided to add a project to its technical agenda to address the effect of underwriter restrictions on fair value measurements. The Board also decided to add a project to its research agenda to evaluate the effects of other types of sale restrictions on fair value measurements.
As part of the Board’s existing project monitoring reference rate reform initiatives, the Board decided to consider developing a principle for benchmark interest rates eligible for fair value hedge accounting.
The Board decided not to add the following potential projects to its agenda:
- Fair value hedge accounting for fixed-rate call option monetization strategies (The Board decided to instead consider whether to address that issue as part of the Hedge Accounting—Phase 2 research project.)
- Customer account disclosures
- Permit an entity to elect as its functional currency the parent’s reporting currency for all its foreign subsidiaries
- Including the current portion of fixed assets as an element of working capital.
As noted above, the Board decided to add a project to its technical agenda to address the following issues:
- Sales-type leases with substantial variable lease payments. A lessor would be required to classify a lease with lease payments that are predominantly variable as an operating lease.
- Remeasurement of lease payments based on a reference index or rate. Lessees would have an option to remeasure lease liabilities upon a change in a reference index or rate affecting future lease payments. Lessees that elected to apply that option would be required to disclose that fact and to apply that option as an entity-wide election.
- Reduction of scope in a lease contract. When a separate lease component within a contract is terminated and the economics of the remaining lease components remain substantially the same as before the partial termination of that contract, an entity (lessee or lessor) would not apply modification accounting to the remaining lease components.
The Board decided that entities that have not adopted Topic 842 as of the effective date of a final Update would follow the transition requirements of Accounting Standards Update No. 2016-02, Leases (Topic 842).
The Board decided that entities that have adopted Topic 842 as of the effective date of a final Update would be permitted to apply the amendments resulting from each of the three issues either retrospectively (with earliest period beginning at the original effective date of Topic 842 for that entity) or prospectively.
- For the first issue (sales-type leases with substantial variable lease payments), prospective application would be for new leases entered into after the effective date or modifications of existing leases that are accounted for as separate leases or new leases after the effective date.
- For the second and third issues (remeasurement of lease payments based on a reference index or rate and reduction of scope in a lease contract), the Board decided that prospective application would be for leases existing at the effective date and new leases entered into after the effective date.
Analysis of Costs and Benefits
The Board concluded that it has received sufficient information and analysis to make an informed decision on the perceived costs of the changes and, subject to what it learns in the comment letter process, that the expected benefits would justify the expected costs of the amendments in the proposed Update.
Comment Period of the Proposed Update
The Board decided to provide a 45-day comment period for the proposed Update.
The Board directed the staff to draft a proposed Accounting Standards Update for vote by written ballot.
Open discussion: post-implementation review. The staff provided an update on actions taken and the plan for continuing the FASB’s post-implementation review (PIR) process for the following standards that are currently under review:
- Leases—The staff has responded to more than 270 technical inquiries, and the Board has issued 5 Updates aimed at improving and simplifying Topic 842, Leases. At its July 29, 2020 meeting, the Board discussed four issues and decided to add three of those to a targeted improvements project as part of its ongoing PIR efforts. A virtual roundtable will be held on September 18, 2020, to discuss broad implementation issues, including those that would apply to private companies, to determine whether the Board needs to take further action.
- Current Expected Credit Losses (CECL)—The staff has conducted 4 public meetings and issued 23 educational papers through the CECL Transition Resource Group (TRG). The staff also has conducted outreach with various types of stakeholders. The Board has issued five Updates aimed at improving Topic 326, Financial Instruments—Credit Losses. Additionally, the Board deferred the effective date of Topic 326 for public business entities that do not meet the definition of a U.S. Securities and Exchange Commission (SEC) filer, private companies, and not-for-profit organizations. The staff has issued two staff Q&As: Whether the Weighted-Average Remaining Maturity Method is an Acceptable Method to Estimate Expected Credit Losses, and Developing an Estimate of Expected Credit Losses on Financial Assets. Currently, the staff is monitoring the adoption of CECL by public companies by listening to earnings calls, reading 10-Qs, collecting data, and speaking to investors. The staff plans to hold a roundtable in the first half of 2021.
- Revenue Recognition—The revenue recognition TRG has responded to 100 submissions, resulting in 60 TRG papers. The Board issued two Updates to defer the effective date of Topic 606, Revenue from Contracts with Customers, and four Updates to clarify or simplify the standard. Most recently, the Board added Revenue Recognition—Practical Expedient for Private Company Franchisors to the technical agenda.