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, May 10, 2017 FASB Board Meeting

Agenda prioritization.

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 Board discussed a potential project about a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is considered a service contract under Subtopic 350-40, Intangibles—Goodwill and Other—Internal-Use Software. The Board decided to add this project to the agenda and decided that the project would be addressed by the Emerging Issues Task Force.

Employee Benefit Plans—Sponsor-Paid Administrative Expenses and Investment Fees

The Board discussed an agenda request related to sponsor-paid administrative expenses and investment fees. The Board agreed that the costs of addressing this issue would outweigh the benefits and decided not to add the project to its agenda.

Revenue recognition implementation.
The Board discussed the status of implementation activities related to its May 2014 Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (and other revenue-related Updates).

The meeting was informational and no technical decisions were made. The Board requested that the staff continue to monitor implementation and disclosures as entities adopt the guidance.

Leases implementation.
The staff provided an update on all the inquiries and feedback received since the issuance of Accounting Standards Update No. 2016-02, Leases (Topic 842). The staff also highlighted the following key inquiries raised since the November 30, 2016 Board meeting.

Pipeline Laterals

Stakeholders inquired whether a pipeline lateral would be considered an identified asset under Topic 842 and, if so, how an entity would determine whether the customer has the right to control the use of that pipeline lateral throughout the period of use. The Board observed that the guidance in Topic 842 is clear that a pipeline lateral is an identified asset. Given that, a company’s evaluation about whether a pipeline lateral is a lease should focus on (1) whether the customer has the right to obtain substantially all the economic benefits from use of the identified asset and (2) whether the customer has the right to direct the use of that identified asset. Contracts for the use of pipeline laterals can vary among and between entities and, therefore, require an assessment based on the relevant facts and circumstances. The Board decided that no further standard-setting action was needed on pipeline laterals.


Stakeholders inquired about whether easements would be within the scope of Topic 842 when currently accounted for as intangible assets. The Board observed that there is guidance in the Codification that refers to perpetual easements as acquired intangible assets and appreciates that guidance has resulted in more than one view on this question. In addition, it was not clear whether being within the scope of Topic 350, Intangibles—Goodwill and Other, or Topic 842 may produce different outcomes in certain fact patterns. Given it may be reasonable to have more than one view on this question, the Board directed the staff to perform additional outreach with preparers, auditors, and users to:
  1. Gather additional information about the types of easements relevant to this question
  2. Identify practice issues that relate to scope of the Codification—specifically, determining how the Codification is applied to easements
  3. Depending on the results of this research, identify recommendations, if necessary, to clarify the Codification in regards to scope, and whether transition guidance would be necessary.

The Board clarified its intent regarding the transition guidance in Topic 842 as follows:

Entities are required to adopt Topic 842 using a modified retrospective transition method, with the option to elect a package of practical expedients and the option to use a practical expedient about hindsight. The Board discussed the two objectives of this transition requirement.

  1. The first objective was to enable entities to leverage their existing systems and processes related to Topic 840 for leases entered before the effective date of Topic 842 and that have not expired before the date of initial application. As discussed in paragraph BC389 of Update 2016-02, the Board aimed at reducing “the cost of transition for preparers, while still reflecting the primary improvement of the lessee accounting guidance at each reporting date presented in an entity’s comparative financial statements.” Because of the closer alignment between the guidance in Topic 840 and the new leases guidance (as compared with that in the 2013 Exposure Draft guidance), the Board did not believe that the benefits of a full retrospective transition justified the cost and complexity to preparers. The Board therefore mandated a modified retrospective transition, which limits situations in which an entity must apply the guidance in Topic 842 during the comparative periods presented and that would have required an entity to maintain two sets of accounting during those comparative periods (that is, one under Topic 840 and then one under Topic 842 once an entity adopts Topic 842), with the exception that lessees should recognize operating leases on balance sheet during the comparative periods presented (but based on amounts determined under Topic 840). However, to the extent that an entity does not elect the package of practical expedients in paragraph 842-10-65-1(f), lease classification changes generally will require an entity to account for a lease as if it had always been accounted for under Topic 842. An entity also may have to write off a portion of initial direct costs, whether lease classification changes or not, if it does not elect the package of practical expedients.

    The transition provisions also generally enable entities to “run off” their existing leases for the remainder of the lease term (including in periods after the effective date), unless, on or after the effective date, either:
    1. The lease is modified and that modification is not accounted for as a separate contract in accordance with paragraph 842-10-25-8.

    2. For lessees only, the lease liability is remeasured in accordance with the subsequent measurement guidance in Subtopic 842-20.
    If either of those events occurs, the lease should be accounted for in accordance with Topic 842 in its entirety from the effective date of the modification or from the remeasurement date.

  2. The second objective was to limit optionality with respect to the various combinations of transition approaches that entities may elect in order to increase comparability for users. As discussed in paragraph BC393 of the Update, the Board aimed at limiting, “for users, the potential number of combinations of transition methods entities might elect.” For example, for these reasons, the Board decided to require that the practical expedients in paragraph 842-10-65-1(f) be elected as a package that will apply to all of an entity’s leases (that is, leases for which an entity is a lessee or a lessor). This is also why the Board decided not to permit entities to adopt the guidance in Topic 842 on a full retrospective approach.

The Board decided that no further standard-setting action was needed on transition.

The Board discussed research performed on improving the accounting for intangibles through two approaches: a holistic approach and a targeted approach. The meeting was educational and no technical decisions were made.

Next Steps

The Board directed the staff to perform additional research to be presented at a future Board meeting.

Liabilities and equity—targeted improvements. The Board completed redeliberations of proposed Accounting Standards Update, Distinguishing Liabilities from Equity (Topic 480): I. Accounting for Certain Financial Instruments with Down Round Features, and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (proposed Update). The Board made the following decisions.

Display (Earnings Per Share)

The Board decided to require an earnings per share (EPS) numerator adjustment to income available to common shareholders in basic EPS for equity-classified freestanding financial instruments. That adjustment would be required for entities within the scope of Topic 260, Earnings Per Share, or entities that voluntarily provide EPS. The adjustment would be measured as the difference between the following amounts determined immediately after the down round feature is triggered:
  1. The fair value of the financial instrument (without the down round feature) with a strike price corresponding to the current strike price of the instrument issued (that is, before the strike price reduction)
  2. The fair value of the financial instrument (without the down round feature) with a strike price corresponding to the reduced strike price upon the down round feature being triggered.
The Board also decided that an entity that is required to make this EPS adjustment would recognize this adjustment in the balance sheet (as an equity adjustment between retained earnings and additional paid-in capital).


The Board decided that an entity that is required to present the EPS adjustment should disclose the value of the effect of the down round trigger. Additionally, the Board decided to amend the disclosure requirements in Topic 505, Equity, to clarify the application of those requirements to changes in conversion or exercise prices.

Transition and Effective Date

The Board affirmed the transition guidance in the proposed Update that an entity would apply a modified retrospective method of transition. That transition would be applied to outstanding instruments as of the effective date of the change, with a cumulative-effect adjustment to the opening balance of retained earnings in the fiscal year or interim period of adoption. The Board also decided to allow entities to apply a full retrospective method of transition.

The Board decided on the effective dates of the final guidance for public business entities and for all other entities as follows:
  1. Public business entities: Fiscal years beginning after December 15, 2018, including interim reporting periods within that fiscal year
  2. All other entities: Fiscal years beginning after December 15, 2019, and interim reporting periods within fiscal years beginning after December 15, 2020
  3. Early adoption: For all entities upon issuance of the standard, early adoption would be allowed for financial statements of fiscal years or interim periods that have not yet been issued or that have not yet been made available for issuance.
Permission to Ballot

The Board decided that the benefits of the changes justify the expected costs of the changes and authorized the staff to draft a final Update for vote by written ballot.