FASB Adds Three Projects to the Technical Agenda
At its meeting on March 28, 2018, the FASB discussed five potential projects and voted to add three of them to the technical agenda, to be addressed by the FASB or the Emerging Issues Task Force (EITF) as discussed below. The Board decided not to add projects that would address (1) determining a highly inflationary economy and (2) accounting for interest rate lock commitments.
Definition of Collections
The FASB Accounting Standards Codification (ASC) master glossary defines collections as “[w]orks of art, historical treasures, or similar assets” that among other things, “are subject to an organizational policy that requires the proceeds of items that are sold to be used to acquire other items for collections.” This definition was established by the issuance of Statement 116,1 which was based on the American Alliance of Museum’s (AAM) Code of Ethics for Museums, adopted in 1991, and the AAM’s Accreditation Self-Study, published in 1989. After the issuance of Statement 116, the AAM updated its Code of Ethics for Museums to state that proceeds from the disposal of collection items should be used for acquisition or direct care of collections. Stakeholders believe that the differences in the definitions have led to diversity in practice and inconsistent policies for those that hold collections.
The FASB voted to (1) add the project to the technical agenda and (2) amend the definition in the ASC master glossary to indicate that proceeds from collection items may also be used for direct care of collection items. The Board directed the staff to draft a proposed Accounting Standards Update, with a 45-day comment period and a prospective transition method. The effective date will be discussed at a future meeting.
Cost Capitalization for Episodic Television Series
Under existing U.S. GAAP, production costs for films are fully capitalized while capitalization of similar costs for episodic television series is subject to a constraint on the basis of certain revenues generated. Because of recent changes in production and distribution models in the industry, stakeholders have questioned whether constraining revenues for episodic television series remains appropriate. The Board voted to add a narrow-scope project to the EITF’s agenda to address the capitalization, amortization, impairment, and disclosure for episodic television series costs.
Recognition of an Assumed Liability in a Revenue Contract Pursuant to ASC 805
In reference to the issuance and adoption of ASC 606,2 stakeholders have raised questions about whether the concept of a performance obligation under ASC 606 should be applied in the accounting for a business combination under ASC 805.3 The Board discussed the following two issues raised by stakeholders, which are summarized in the March 28, 2018, meeting handout:
Issue 1: In a revenue contract with a customer that is acquired in a business combination, should the new definition of performance obligation that is included in Topic 606 be used to determine the identifiable liabilities recognized in the business combination?
Issue 2: When measuring the fair value of a contract liability from a revenue contract acquired in a business combination, should the direct costs to fulfill the performance obligation consider the assets and liabilities in the acquired set?
The Board voted to add a project to the EITF’s agenda addressing these issues.
The EITF is likely to discuss this issue and the cost capitalization for episodic television series issue at its June 7, 2018, meeting.