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Episodic Television Series – FASB Ratifies EITF Decision NEW!

FASB Ratifies EITF Decisions 

EITF Reaches Consensus-for-Exposure 

EITF Flash Report - EITF Reaches Final Consensus on Cloud Computing Arrangements

EITF Flash Report - EITF Meeting Results Discusses

EITF Matters - Results of the October 12, 2017 EITF Meeting

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Episodic Television Series – FASB Ratifies EITF Decision

Summary - As reported in its “Summary of Board Decisions” publication, the FASB met on January 30, 2019, and ratified the consensus reached at the January 17, 2019 EITF meeting on EITF Issue No. 18-B, “Improvements to Accounting for Episodic Television Series.” The FASB directed its staff to draft an Accounting Standards Update reflecting the consensus for vote by written ballot. See our Literature Update for complete details.
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FASB Ratifies EITF Decisions

Summary - As reported in its "Summary of Board Decisions" publication, the FASB met on October 10, 2018, and ratified the consensuses-for-exposure reached at the September 27, 2018 EITF meeting on the following EITF Issues. The FASB directed its staff to draft proposed Accounting Standard Updates (ASUs) reflecting each 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 EITF reaffirmed the consensus-for-exposure (which was reached at its June 7, 2018 meeting) that the performance obligation definition in Topic 606, Revenue from Contracts with Customers, would be used to determine whether a liability assumed for a contract liability from a revenue contract with a customer is recognized by the acquirer in a business combination. The Task Force also reaffirmed the consensus-for-exposure that it reached at a prior meeting that would require an entity to apply the proposed amendments prospectively to all business combinations that occur after the proposed amendments are effective and not to require any disclosures in the period of adoption. The Task Force decided not to address the measurement of the contract liability and the effect of payment terms on subsequent revenue recognition.

In addition to the consensus-for-exposure being ratified by the Board, the FASB chairman authorized the staff to prepare a Discussion Paper in the form of an Invitation to Comment (separate from the proposed Update) to solicit input about measurement and other topics related to the Task Force’s consensus-for-exposure.

The Board decided to expose the proposed Update and the Invitation to Comment (the Discussion Paper) for public comment concurrently for a period ending on April 30, 2019.

Issue No. 18-B, “Improvements to Accounting for Episodic Television Series”

The EITF reached a consensus-for-exposure to converge the capitalization guidance for films and episodic content. The Task Force also reached a consensus-for-exposure to allow an entity to assess a film group for impairment and amend the presentation and disclosure requirements for films and episodic content. In addition, the Task Force agreed to make conforming amendments to Subtopic 920-350, Entertainment—Broadcasters—Intangibles—Goodwill and Other, to align its impairment and presentation and disclosure guidance with the Task Force’s decisions. The Task Force also decided to require that an entity reassess estimates of the use of a film and account for any changes prospectively.

In addition, the Task Force reached a consensus-for-exposure that would require that an entity apply the amendments resulting from this Issue on a prospective basis and disclose the nature of and reasons for the change in accounting principle, the transition method, and a qualitative description of the financial statement line items affected by the change.

The Board decided to expose the proposed Update for public comment for a period of 30 days.

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EITF Reaches Consensus-for-Exposure

Summary - The EITF met and discussed the following two issues:

  • 18-A, “Recognition under Topic 805 for an Assumed Liability in a Revenue Contract”; and
  • 18-B, "Improvements to Accounting for Episodic Television Series."

Regarding Issue 18-A, the EITF discussed whether to move forward on issuing a proposed ASU on the recognition aspects of Issue 18-A, or whether to issue a separate discussion paper to get input on both recognition and measurement aspects before issuing a proposed ASU. The EITF supported issuing a proposed ASU based on the recognition aspects in the previously reached consensus-for-exposure and to issue a separate discussion paper to receive further feedback from constituents on measurement aspects.

The EITF reached a consensus-for-exposure on Issue 18-B. The EITF discussed alternatives for the unit of account for impairment related to an episodic television series. The EITF supported amending the unit of account for impairment in Subtopic 926-20 to be the lowest level of identifiable cash flows in certain situations.

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EITF Flash Report - EITF Reaches Final Consensus on Cloud Computing Arrangements

Summary - The EITF held a meeting on June 7, 2018, and discussed the following issues:
  • EITF 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";
  • EITF Issue No. 18-A, "Recognition under Topic 805 for an Assumed Liability in a Revenue Contract"; and
  • EITF Issue No. 18-B, "Improvements to Accounting for Episodic Television Series."
The EITF members voted to issue a final consensus on Issue 17-A.
 
Issue 17-A Discussion
 
The objective of the project is to reduce complexity and diversity in practice by clarifying the accounting for implementation costs of a cloud computing arrangement that is a service contract. The EITF discussed feedback received on proposed Accounting Standards Update, Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract; Disclosures for Implementation Costs Incurred for Internal-Use Software and Cloud Computing Arrangements. The EITF reached a number of decisions to include in the final consensus, including the following:
  • To require an entity to capitalize implementation costs of a hosting arrangement that is a service contract using the guidance in Subtopic 350-40 on internal-use software.
  • To require an entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement, which would include renewal options that are reasonably certain to be exercised, and present it in the same line item in the statement of income as the fee associated with the hosting arrangement.
  • Clarified that capitalized implementation costs should be presented in the same line item on the balance sheet as a prepayment of fees related to the hosting arrangement.
  • Clarified that the cash flows related to capitalized implementation costs should be classified in the same manner as the cash flows for the fees related to the hosting arrangement.
  • To not provide guidance on the application of the project stages in Subtopic 350-40 to hosting arrangements.
  • To require an entity to apply the impairment model included in Subtopic 350-40 with the clarification that the unit of accounting for abandonment is the asset related to a module or a component of the hosting arrangement.
  • Amended the definition of "Hosting Arrangement" in the Master Glossary to remove the reference to licensing.
  • Allow an entity to choose between prospective transition and retrospective transition when adopting the guidance in any amendments resulting from Issue 17-A.
  • For Public Business Entities, Issue 17-A would be effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years beginning after December 15, 2019.
  • For all other entities, Issue 17-A would be effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021.
  • Permit early adoption for all entities in any annual or interim period for which the entity's financial statements have not yet been issued or made available for issuance.
 
Issue 18-A Discussion
The issuance and adoption of Topic 606, Revenue from Contracts with Customers, has raised questions about what definition should be applied in the recognition of a liability under Topic 805 for an assumed liability in a revenue contract for a business combination that occurs after the adoption of Topic 606. Given the diversity of potential views, the objective of this project is to narrow this diversity in practice.
The EITF presented two alternative views on accounting for an assumed liability in a revenue contract for a business combination that occurs after the adoption of Topic 606:
  • Alternative A: Legal Obligation: A Company recognizes a contract liability only for its legal obligation to the customer as of the acquisition date because Topic 606 did not consequentially amend Topic 805 and current practice is to use the legal obligation concept.
  • Alternative B: Performance Obligation: A Company recognizes a contract liability if it has a performance obligation to the customer as of the acquisition date based on Topic 606.
The majority of the EITF supported the performance obligation in Alternative B. The EITF also discussed measurement issues and generally agreed that:
  • The acquirer would use the acquisition date fair value for measurement of an assumed liability in a revenue contract.
  • Direct costs to fulfill a performance obligation would consider assets that were included in the acquired set when measuring the fair value of a contract liability recognized in a business combination.
The majority of the EITF supported a prospective transition method with no transition disclosures required.
 
Issue 18-B Discussion
 
The entertainment industry has experienced significant change in production and distribution models over the recent years. As a result, some stakeholders have questioned whether the constraint in the capitalization guidance for episodic content still provides relevant information to investors considering these changes. For example, the internet has introduced new distribution channels with streaming capabilities and new participants into the industry with different business models, such as subscription-based revenue models. The objective of this project is to determine whether the existing capitalization models still provide relevant financial reporting in the current business environment.
 
The majority of the EITF supported the view that companies that produce episodic television series would capitalize production costs in the same manner as film production costs. This alternative would eliminate the current hurdle in the capitalization of production costs for episodic television series. As a result, companies no longer would need to assess contracted revenues in the initial market or establish estimates of secondary market revenue. Current amortization guidance in Subtopic 926-20 would remain unchanged.
 
The EITF expressed the desire for additional feedback on practical considerations from the working group for this project to be considered at future meetings.
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EITF Flash Report - EITF Meeting Results Discusses

Summary - The EITF held a meeting today to continue its discussion of EITF 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 EITF members voted to issue a consensus-for-exposure for public comment on Issue 17-A.

Issue 17-A Discussion

The majority of the EITF members supported the view that all hosting arrangements are within the scope of Subtopic 350-40. The task force also agreed that the consensus-for-exposure should address income statement alignment of implementation costs expensed with the presentation of other costs associated with a cloud computing contract.

The EITF was supportive of remaining silent on whether the amendments resulting from Issue 17-A could be applied by analogy to other contracts that are not within the scope of this project, including contracts that provide the right to use intangible assets.

The EITF discussed possible disclosures of implementation costs related to cloud computing arrangements. The members discussed whether any proposed disclosures should be tailored to just cloud computing contracts or whether they would also be tailored to software arrangements. Most members supported aligning the disclosure requirements for implementation costs for both cloud computing and software arrangements.

Regarding transition and related transition disclosures, the EITF members supported permitting an entity to choose between prospective and retrospective transition. Such a transition approach would be consistent with the transition requirements for the amendments in FASB ASU No. 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.

FASB Staff Draft Q&As

The EITF also discussed FASB Staff draft Questions and Answers (Q&As) on the financial reporting effects of the Act. This guidance would be in addition to the FASB staff’s Q&As issued on January 11, 2018, that focused on guidance for private companies and not-for-profit organizations.

The Q&As discussed at the EITF meeting were:

  • Whether to Discount Alternative Minimum Tax Credits That Become Refundable;
  • Whether to Discount the Tax Liability on the Deemed Repatriation;
  • The Accounting for Global Intangible Low-Taxed Income; and
  • The Accounting for the Base Erosion Anti-Abuse Tax.

The EITF members did not raise any significant concerns regarding the guidance within these draft Q&A’s. The FASB staff intends to issue these new Q&As publicly within the next few days.

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EITF Matters - Results of the October 12, 2017 EITF Meeting

Summary - As reported in our EITF Flash Report, the EITF continued its deliberations on EITF 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 majority of task force members were supportive of a revised alternative provided by the FASB staff that concludes that all cloud computing arrangements (CCAs) include a software element and be within the scope of Codification Subtopic 350-40 on internal-use software.

In Codification Subtopic 350-40, costs associated with implementation activities are not capitalized as a separate or stand-alone asset. Instead, the software is the identified asset and costs of implementation activities are added to the measurement of the software asset if they are incurred to get the asset ready for its intended use. The revised alternative supported by most of the task members identifies a software element (and the right-to-use that software) in all CCAs, which is the asset to which implementation costs can be added.

The official minutes to this meeting will be posted in Accounting Research Manager as soon as they are available. The next EITF meeting is scheduled for November 16, 2017.

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