Tentative Board Decisions

Effective date considerations due to Coronavirus Disease 2019 (COVID-19) disruptions. In response to global concerns about the effects that the COVID-19 pandemic may have on stakeholders, the Board discussed delaying for certain entities the effective dates of:

1. Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606)
2. Accounting Standards Update No. 2016-02, Leases (Topic 842).

Board Decisions

The Board decided to add a project to its technical agenda to amend the effective dates of Topic 606 and Topic 842 for certain entities as described below.

Additionally, the Board decided to add a project to its research agenda to evaluate how to reduce implementation costs related to applying Topic 606 to initial franchise fees.
 

Comment Period of the Proposed Update

The Board decided to provide a 15-day comment period for the proposed Update.

Next Steps

The Board directed the staff to draft a proposed Accounting Standards Update for vote by written ballot.


Other COVID-19-related discussion. The Board also discussed plans to support stakeholders as they navigate the effects of the COVID-19 pandemic relating to (1) effective dates for significant standards with effective dates of 2022 and beyond and (2) future standard-setting activities for current project deliberations. Additionally, the staff provided an update on the following technical inquiries that are related to the effects of COVID-19:

Leases

The staff discussed its response to the question about whether lease concessions related to the effects of COVID-19 are required to be accounted for in accordance with the lease modification guidance in Topic 842, Leases (or Topic 840, Leases).  The staff will post the answer to this question as part of a question-and-answer (Q&A) document to the FASB implementation website in the coming days and stands ready to assist the Board's stakeholders with any further questions they may have regarding modification guidance. We will determine the need for any further Q&A documents at a future date.

Interest Income

The staff received a technical inquiry regarding the recognition of interest income. For illustrative purposes that inquiry included a fact pattern whereby an institution was providing assistance to borrowers impacted by COVID-19. The institution in the example provided a "loan payment holiday" allowing borrowers to temporarily stop payments.

Interest Income

The staff received a technical inquiry regarding the recognition of interest income. For illustrative purposes that inquiry included a fact pattern whereby an institution was providing assistance to borrowers impacted by COVID-19. The institution in the example provided a "loan payment holiday" allowing borrowers to temporarily stop payments. Interest would not accrue while the loan payment holiday is in effect. The loan modification in the fact pattern did not represent a troubled debt restructuring in accordance with Subtopic 310-40, Receivables—Troubled Debt Restructuring by Creditors. Additionally, in accordance with Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs, the modification would be accounted for as the continuation of the original lending arrangement; that is, not as a new lending arrangement—in which case the modification would not be accounted for as an extinguishment of the original loan and the recognition of a new loan.

The staff discussed its response to how the institution should recognize interest income when a payment holiday is given and interest is not accrued in this scenario. There were two views expressed in the technical inquiry:

View 1—Upon modification, a new effective interest rate in accordance with Subtopic 310-20 is determined that equates the revised remaining cash flows to the carrying amount of the original debt and is applied prospectively for the remaining term. That is, interest income is recognized during the payment holiday period.

View 2—Upon modification, the institution should recognize interest income on the loan in accordance with the contractual terms. Under this view, the institution would recognize no interest income during the payment holiday and would resume recognizing interest income when the payment holiday ends.

The staff reviewed the submission, accompanying illustrations, and referenced accounting guidance and believes both views to be appropriate.

Derivatives and Hedging

In accordance with Subtopic 815-30, Derivatives and Hedging—Cash Flow Hedges, if cash flow hedge accounting is discontinued, amounts deferred in accumulated other comprehensive income (AOCI) should remain in AOCI unless it is probable that the forecasted transaction will not occur by the end of the originally specified time period or within a two-month period of time thereafter. In rare cases, the existence of extenuating circumstances that are outside the control or influence of the entity may cause the forecasted transaction to be probable of occurring at a date that is beyond that additional two-month period. In those cases, amounts deferred in AOCI should remain in AOCI until the forecasted transaction affects earnings. That is, in those rare cases an entity should disregard the timing restrictions otherwise applicable to the forecasted transaction and continue to defer amounts previously recorded in AOCI until the forecasted transaction affects earnings.

The staff discussed its response to the following question: when cash flow hedge accounting has been discontinued, may delays in timing of the forecasted transactions related to COVID-19 be considered rare cases caused by extenuating circumstances outside the control or influence of the entity?

The staff responded yes. The exception in Subtopic 815-30 related to rare cases caused by extenuating circumstances outside the control or influence of the entity may be applied to COVID-19-related delays in timing of the forecasted transactions. Consequently, for de-designated hedges if the forecasted transaction is probable of occurring after the additional two-month period, the entity may continue to retain amounts previously recorded in AOCI associated with that forecasted transaction until that forecasted transaction affects earnings. However, that exception only applies to situations in which the forecasted transaction remains probable of occurring. If the entity determines that it is not probable that the forecasted transaction will occur because of the effects of COVID-19, the exception would not apply and amounts previously recorded in AOCI should be reclassified into earnings immediately and disclosed in the entity's interim and annual financial statements.

The staff continues to monitor this unique and evolving situation and work with our stakeholders on questions arising and will communicate with the industry as this situation unfolds, including through additional statements, technical inquiries, and Q&A documents, as appropriate.

Fair Value Measurement

The staff recently received a request to suspend mark-to-market accounting. In that request, the authors of the letter specifically referenced guidance developed during the 2008-2009 financial crisis. The staff provided a reminder of the orderly transaction guidance in Topic 820, Fair Value Measurement, specifically paragraphs 820-10-35-54C through 54J, which provide guidance for measuring fair value when the volume or level of activity for an asset or a liability has significantly decreased and identifying transactions that are not orderly. The staff stands ready to address any interpretive questions with respect to that guidance.