June 2016

Settlement of zero-coupon bonds — The consensus-for-exposure had indicated that cash paid to settle a zero-coupon bond would be bifurcated between operating activities and investment activities on the basis of the amount of accreted interest and principal, respectively. However, feedback on the proposed amendments questioned whether this guidance was relevant only to zero-coupon bonds or whether it should be applied to other instruments with similar economic characteristics (e.g., bonds issued at a discount or bonds with interest payments that are not based on market interest rates). In light of that feedback, the Task Force decided to modify the scope of the subissue to include zero-coupon bonds and bonds with insignificant cash coupons. That is, the guidance would indicate that the presentation requirements only apply to bonds matching this description.Contingent consideration payments made after a business combination — The consensusfor- exposure had required that contingent consideration payments that were not made on the acquisition date or soon before or after the business combination would be classified in financing (payments up to amount of initial measurement) and operating (payments in excess of initial measurement) activities. However, feedback on the proposed amendments indicated that it was unclear what time period after a business combination would be considered “soon after” and that differing interpretations of this period could create diversity in practice. The Task Force debated whether to remove the “soon after” language but was concerned that doing so would be inconsistent with the guidance on classifying cash payments made soon after an asset acquisition. Ultimately, the Task Force tentatively decided to retain the language and stated that the final guidance will indicate that contingent consideration payments made soon after a business combination (on the basis of the consummation date) should be classified as investing activities.

Distributions received from equity method investees — An entity that accounts for an investment under the equity method may receive cash dividends representing a return on or return of its investment. The consensus-for-exposure had indicated that the cumulative earnings method should be used to determine the cash flow classification for the dividends. Under the cumulative earnings method, when cumulative distributions (excluding amounts previously deemed to be returns of the investment) do not exceed an investor’s cumulative equity in earnings, the dividends represent a return on investment and should be classified in operating activities. In contrast, when cumulative distributions exceed cumulative equity in earnings, the excess represents a return of investment and should be classified in investing activities.

Some feedback received on the proposed amendments disagreed with the cumulative earnings method because it may not reflect the nature of distributions received from equity method investees and may not provide investors with the most decision-useful information. On the basis of this feedback, the Task Force considered another approach for presenting distributions received from equity method investees. Under this approach, referred to as the “look-through approach,” the entity would determine whether distributions were returns on investment classified as operating activities or returns of investment classified as investing activities on the basis of specific facts and circumstances. Ultimately, the Task Force decided that, when presenting distributions received from equity method investees, an entity would elect, as an accounting policy, to apply the cumulative earnings method or the look-through approach to its investments as a whole. If the entity, whose chosen policy is the look-through approach, cannot apply the look-through approach because it does not have enough information to determine whether the distribution is a return on or a return of its investment, it must apply the cumulative earnings method.

Presentation of master trust balances and activity on the face of the plan’s financial statement — When an employee benefit plan has investments in a master trust, the plan must disclose the balances and activity of its interest in the master trust on the face of the financial statements as well as in the footnotes. However, this presentation guidance is inconsistent within U.S. GAAP and has led to diversity in practice. To eliminate this diversity, the Task Force tentatively decided that a plan must present its interest in master trust balances and activity as one net investment line item in its financial statements.

Disclosure for plans with divided interests — The Task Force considered whether plans with divided interests in master trusts should provide additional disclosures about the plan’s interest in the master trust for each general type of investment. The EITF tentatively decided that plans with divided interests in master trusts would be required to disclose both the total master trust investment balances by type of asset and the individual plan’s interest in those balances.

Disclosure of investment-related accruals — The Task Force tentatively decided to require a plan to disclose both the investment-related accruals for the master trust and the individual plan’s interest in such accruals.

Section 401(h) account investment disclosures — A 401(h) plan is a postretirement benefit plan that may have assets funded through the entity’s defined benefit plan assets. The EITF tentatively decided to remove the required disclosures for Section 401(h) account assets in a health and welfare plan and instead require the health and welfare plan to provide the defined benefit plan’s name with which the account asset disclosures are associated.

Consistency between ASC topics — Under current U.S. GAAP, benefit plan guidance is located in ASC topics 960, 962, and 965, which contain (with the exception of ASC 965) certain guidance on master trusts. The EITF tentatively decided to align the guidance in ASC 960, 962, and 965 when applicable.