Financial Accounting Standards Board
Board Meeting Handout
Testing Indefinite-lived Intangible Assets for Impairment
June 6, 2012
Purpose and Background
1.
The purpose of this meeting is for the Board to review stakeholders’ input received
during the comment period of the proposed Accounting Standards Update,
Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible
Assets for Impairment. The Board’s objective for issuing the proposed Update was
to reduce the cost and complexity of performing an impairment test for indefinitelived intangible assets other than goodwill and to improve consistency in
impairment testing guidance among long-lived asset categories. Under the
proposed Update, an entity would have the option to first perform a qualitative
assessment to determine whether events and circumstances indicate that it is more
likely than not that the indefinite-lived intangible asset is impaired.
2.
The 90-day comment period for the proposed Update ended on April 24, 2012. A
total of 28 comment letters were received.
Comment Letter Demographics
3.
The following table categorizes the comment letter respondents by type:
Type of Respondent
Number
Preparers
7
Auditors
8
The staff prepares Board meeting handouts to facilitate the audience's understanding of the issues to be
addressed at the Board meeting. This material is presented for discussion purposes only; it is not intended
to reflect the views of the FASB or its staff. Official positions of the FASB are determined only after
extensive due process and deliberations.
Page 1 of 7
Valuation Firms
2
State CPA Societies
3
Professional Groups
5
Individuals/Other
3
Total
28
Summary of Stakeholder Input
4.
The staff will summarize for the Board the input received from stakeholders during
the proposed Update’s comment period.
5.
All preparer respondents indicated that the proposal will reduce overall costs and
complexity compared with existing guidance. Many preparers stated that the
proposal will significantly reduce their costs and will substantially reduce their
efforts incurred to test indefinite-lived intangible assets for impairment. One
preparer acknowledged the benefits of the proposal but anticipated a lesser extent
of cost savings because of the efforts that will be necessary to document and audit
a robust qualitative assessment.
6.
Other stakeholders mostly supported the proposed guidance. Valuation firms, CPA
societies, individuals, and other professional groups stated that the proposed
guidance would result in an overall reduction in cost and complexity when testing
indefinite-lived intangible assets for impairment.
7.
All preparer respondents indicated that they expect to utilize the qualitative
assessment. The preparers explained that the benefits associated with performing a
qualitative assessment will result in time and cost savings. Some preparers further
explained that they may choose to forego the qualitative assessment option and
conduct the quantitative test after every certain number of years (for example,
every three years) to obtain an updated “baseline.”
Page 2 of 7
8.
Auditor respondents provided mixed feedback on the proposed qualitative
assessment option about whether it would reduce the overall cost and complexity
compared with existing guidance. They stated that the proposed guidance would be
most useful in situations in which a recent calculation demonstrates that the fair
value of the indefinite-lived intangible asset exceeds its carrying value by a
substantial margin. However, some were skeptical of any realized cost and time
savings when both positive and negative factors have affected the significant inputs
used in calculating the fair value of the indefinite-lived intangible asset because
this could result in an entity first performing the qualitative assessment and then
realizing that it also must perform the quantitative assessment.
9.
Some auditors were skeptical of whether the proposed guidance would result in a
reduction of overall cost and complexity for both preparers and auditors in
circumstances in which a baseline is not relatively recent. A few auditors stated
that the proposal would result in only an incremental reduction in cost and
complexity by improving consistency among the various areas of long-lived
impairment guidance within U.S. GAAP.
10.
Some auditors stated that it is unclear what level of documentation detail would be
necessary to support an entity’s qualitative assessment. These auditors also
mentioned that the subjective nature of the qualitative assessment could result in
auditing difficulties when trying to obtain sufficient and appropriate audit evidence
supporting management’s assertions. If the entity’s qualitative assessment
comprises inputs subject to significant uncertainties, this could result in auditors
performing additional procedures to corroborate management’s assertions, which
could result in increased audit costs. A few auditors noted that an entity’s
thoughtful and robust documentation to support the application of the proposal will
be most helpful in achieving cost savings for auditors as well as preparers.
11.
All of the auditor respondents indicated that their responses would not be different
for public and nonpublic entities.
Page 3 of 7
12.
User respondents stated that the optional qualitative assessment in certain
circumstances may defer the recognition of impairment charges. However, they
also noted that the impairment of an indefinite-lived intangible asset is more likely
a trailing indicator of problems in a business, and that an impairment loss typically
is only a confirmation of what users already know or suspect. These respondents
added that this potential risk would not have an effect on their decision-making
process, and they believe that the benefits of reducing costs and complexity
outweigh the risk of a delayed impairment loss or, in limited circumstances,
recognition of an unexpected impairment loss. Another professional group
respondent that includes private company users explained that they are typically
more focused on an entity’s cash flows and tangible assets and, therefore, find it
appropriate to permit a qualitative analysis for those assets that are less relevant to
their quantitative assessment.
13.
User respondents supported the qualitative test and stated that, if applied and
documented appropriately, that test would not affect the timing of the recognition
of impairment losses.
Redeliberation Topics
14.
The staff has reviewed stakeholders’ input about aspects of the proposal and will
ask the Board several questions based on the input received.
Question for the Board
Question 1: Does the Board wish to affirm the overall approach in the
proposed Update (subject to the clarifications, discussed below)?
Examples of Events and Circumstances That Should Be Assessed
15.
Most respondents agreed that the examples of events and circumstances in
paragraph 350-20-35-3C(a) through (e) are helpful in assessing whether significant
inputs to the fair value measurement has changed significantly to indicate that it is
more likely than not that an indefinite-lived intangible asset is impaired. Some
respondents stated that the examples of factors listed in paragraph 360-10-35-21 on
Page 4 of 7
events and circumstances that may indicate that carrying amount is not
recoverable, and in paragraphs 350-30-35-3 through 35-4 on determining an
intangible asset’s useful life, can be referenced to the list of examples of events and
circumstances as asset-specific factors.
Question for the Board
Question 2: Does the Board wish to include additional factors for
consideration that currently are included in other guidance in Topics 350
and 360?
Disclosure of Quantitative Information about Significant Unobservable
Inputs Used in Measuring an Indefinite-Lived Intangible Asset’s Fair Value
16.
The majority of respondents either agreed with, or did not object to, the proposed
exemption for nonpublic entities to disclose quantitative information about
significant unobservable inputs used in measuring an indefinite-lived intangible
asset’s fair value. However, three audit firms and one professional group
respondent questioned why the exemption would not be extended to public entities.
Questions for the Board
Question 3: Does the Board affirm its decision to exempt nonpublic entities
from disclosing quantitative information about significant unobservable
inputs?
Question 4: Does the Board continue to believe that public entities should
be required to disclose quantitative information about significant
unobservable inputs?
Incorporating Paragraph BC12 of the Proposed Update into the Codification
17.
Some respondents agreed with the Board’s assessment that the length of time that
has elapsed since the last fair value calculation was performed for an indefinitelived intangible asset should be taken into consideration as a factor in the
qualitative test because it is an important factor. Therefore, they believe that
codifying this as formal guidance is necessary to ensure that the significance of this
factor is not lost.
Page 5 of 7
Question for the Board
Question 5: Does the Board believe that paragraph BC12 of the proposed
Update should or should not be included in the Codification?
Additional Implementation Guidance and Disclosures
18.
Some auditor respondents stated that the guidance should include some examples
and additional implementation guidance because that will help clarify the Board’s
expectations about how to consider the qualitative factors.
Question for the Board
Question 6: Does the Board believe that implementation guidance, including
examples, should be included in the final Update?
19.
Some auditor respondents stated that the additional disclosures such as (a) an
entity’s use of the optional qualitative assessment, (b) significant factors evaluated
in reaching the conclusion that it is not more likely than not that the indefinitelived intangible asset is impaired, and (c) reasons for switching between
performing a qualitative test and a quantitative test would provide meaningful
information to the users of the financial statements.
Question for the Board
Question 7: Does the Board believe that additional disclosures should be
required?
Clarification of Threshold for Interim Impairment Test
20.
Some respondents requested that the standard clarify the threshold requirements for
annual versus interim impairment test of an indefinite-lived intangible asset. These
respondents noted that the current threshold for evaluating whether changes in
events and circumstances during interim periods (paragraph 350-30-35-18 “an
interim test must be performed. . .if events or circumstances indicate that an asset
Page 6 of 7
might be impaired”) in the current guidance is different from the threshold required
for the annual test (“more likely than not”).
Question for the Board
Question 8: Does the Board believe that the threshold for an interim
assessment and an annual impairment test for indefinite-lived intangible
assets should be clarified?
Effective Date and Transition Provisions
21.
All respondents agreed with the proposed effective date and transition provisions,
including the option to early adopt. However, considering the timing of the Board’s
redeliberations on the proposed Update, the staff believes that the effective date
should be revised to apply prospectively for annual and interim impairment tests
performed for fiscal periods beginning after September 15, 2012, with early
adoption permitted.
Question for the Board
Question 9: Does the Board affirm the staff’s recommendation for the
effective date and transition provisions, including the option to early adopt?
Next Steps
22.
The staff will address any other questions or concerns that the Board has about the
proposal or the input received from respondents.
Questions for the Board
Question 10: Does the Board have additional questions about the feedback
obtained during the comment period?
Question 11: Does the Board direct the staff to begin drafting a final
Accounting Standards Update that reflects decisions reached at this
meeting?
Page 7 of 7
Board Meeting Handout
Not-for-Profit Financial Reporting: Financial Statements
June 6, 2012
Purpose of This Meeting
1. The purpose of this meeting is to discuss the tentative plan for the project on notfor-profit financial reporting: financial statements. The staff discussed the
approach for the project’s plan with the FASB’s Not-for-Profit Advisory
Committee at its March 2012 meeting. On May 16, 2012, the staff held an
educational meeting with the Board on the background and history of the project.
The staff then held conference calls with the project resource group members on
May 29, 2012, to get their feedback on the project’s plan. The resource group
members did not suggest any substantive changes to the project’s plan, which can
be found on the FASB’s Technical Plan and Project Updates webpage.
Question for the Board
Does the Board have any questions about or suggestions for the project’s plan?
The staff prepares Board meeting handouts to facilitate the audience's understanding of the issues to be
addressed at the Board meeting. This material is presented for discussion purposes only; it is not intended
to reflect the views of the FASB or its staff. Official positions of the FASB are determined only after
extensive due process and deliberations.
Board Meeting Handout
Definition of a Nonpublic Entity
June 6, 2012
Purpose of the Meeting
1. At this meeting, the Board will discuss whether a company that otherwise meets the
characteristics of a private company as defined in this project and (a) is controlled by
a public company or (b) controls a public company, should be defined as a private
company. The Board will also discuss whether an employee benefit plan should be
included in the definition of a private company. The definition of a private company
will be used for financial reporting purposes and for determining the types of entities
that will be included in the scope of the Private Company Decision-Making
Framework.
Issue 1: A Private Subsidiary that is Controlled by A Public Company
2. Three of the definitions of a nonpublic entity in the Codification include the criterion
that an entity that is controlled by a public entity is considered a public entity. The
staff believes that the primary issue for consideration by the Board is whether a U.S.
private subsidiary that is controlled by a U.S. public company should be required to
comply with the same accounting guidance as public companies when preparing
stand-alone financial statements. For purposes of this discussion, the staff is
considering an entity that is controlled by another entity to include entities within the
scope of Topic 810, Consolidation.
Alternatives
3. The staff has identified the following alternatives for the Board’s consideration about
the definition of a private company: A private subsidiary that is a consolidated into
its controlling public company’s U.S. GAAP financial statements should be:
(a)
Alternative 1: Excluded in the definition of a private company.
(b)
Alternative 2: Included in the definition of a private company.
The staff prepares Board meeting handouts to facilitate the audience's understanding of the issues to be
addressed at the Board meeting. This material is presented for discussion purposes only; it is not intended
to reflect the views of the FASB or its staff. Official positions of the FASB are determined only after
extensive due process and deliberations.
Question 1 for the Board
Does the Board believe that a company, that otherwise meets the characteristics of a
private company as defined in this project, that is consolidated into its controlling public
company’s U.S. GAAP financial statements should be included in the definition of a private
company for financial reporting purposes and therefore would be within the scope of the
Private Company Decision-Making Framework? Which Alternative does the Board prefer?
Issue 2: A Private Company that Controls a Public Company
4. Under all current definitions of a nonpublic entity in the Codification, a private
company that controls a public company is considered a nonpublic entity. The staff
believes that the primary issue for consideration by the Board is whether a U.S.
private company that consolidates a U.S. public subsidiary into its financial
statements should be permitted to apply differences in accounting guidance for
private companies.
Question 2 for the Board
Does the Board believe that a company, that otherwise meets the characteristics of a
private company as defined in this project, should be included in the definition of a private
company for financial reporting purposes and therefore, would be within the scope of the
Private Company Decision-Making Framework because it consolidates a public subsidiary
into its U.S. GAAP financial statements?
Issue 3: Employee Benefit Plans
5. Four of the definitions of a nonpublic entity in the Codification define all employee
benefit plans as a nonpublic entity for financial reporting purposes (one of those
definitions define employee benefit plans that are required to file a Form 11-K with
the Securities and Exchange Commission (SEC) as public entities). Questions have
arisen about how the definition of “nonpublic entity” applies to employee benefit
plans. Specifically, Accounting Standards Update No. 2011-04, Fair Value
Measurement, uses a definition in the Codification which specifies, among other
things, that entities that file or furnish financial statements with the SEC or entities
that are controlled by entities covered by that or any of the other criteria, are not
considered nonpublic entities.
6. The staff has performed outreach to obtain feedback from stakeholders including the
users, auditors, and preparers of employee benefit plan financial statements, about
whether employee benefit plans should be considered nonpublic entities for financial
reporting purposes. The majority of stakeholders have indicated that they support one
set of accounting requirements for all employee benefit plans including plans that file
Form 11-K. Regulators indicated that they would generally not be supportive of
differences for any areas of accounting guidance including recognition and
measurement, disclosure, transition, effective date, or display. Stakeholders stated
that employee benefit plans are different from most private companies and public
companies given employee benefit plans are not business entities. However,
employee benefit plans should be given specific consideration when the Board
deliberates individual accounting standards.
Alternatives
7. The staff has identified the following alternatives for consideration about the
definition of a private company. An employee benefit plan should:
(a)
Alternative 1: Not be included in the definition of a private company.
(b)
Alternative 2: Be included in the definition of a private company.
(c)
Alternative 3: Not be included in the definition of a private company if
an employee benefit plan is sponsored by a public company.
Question 3 for the Board
Does the Board believe that an employee benefit plan should be included in the definition
of a private company for financial reporting purposes and therefore, would be within the
scope of the Private Company Decision-Making Framework? Which alternative does the
Board prefer?
Board Meeting Handout
Revenue Recognition
June 6, 2012
Introduction and purpose
1.
The purpose of this meeting is to:
(a)
Provide additional details about outreach activities that were conducted
with nonpublic entity stakeholders, including private companies, not-forprofit organizations, and users of nonpublic entity financial statements.
(b)
Highlight the primary concerns raised by nonpublic entity stakeholders
on the Board’s revised Exposure Draft, Revenue from Contracts with
Customers, that was published in November 2011.
2.
In addition to the concerns highlighted at this meeting, nonpublic entities shared
many of the concerns of public entities that were highlighted at the joint Board
meeting on May 22, 2012. Therefore, the concerns discussed at this meeting are
incremental to the concerns raised in the main feedback summary.
Specific proposals in the 2011 Exposure Draft for nonpublic entities
3.
As proposed in the November 2011 Exposure Draft, nonpubic entities would be
granted exemptions from applying most of the proposed quantitative disclosure
requirements. Not-for-profit organizations would be granted an exemption from
having to apply the onerous performance obligation test for contracts that have
been entered into for charitable or social benefit purposes. Finally, the standard
would become effective a minimum of one year after the effective date for public
entities.
The staff prepares Board meeting handouts to facilitate the audience’s understanding of the issues to be
addressed at the Board meeting. This material is presented for discussion purposes only; it is not intended
to reflect the views of the FASB or its staff. Official positions of the FASB are determined only after
extensive due process and deliberations.
Summary of Outreach Activities
4.
A detailed summary of the outreach activities that the Board and staff conducted
between September 2011 (when drafting of the Exposure Draft was nearing
completion) and May 2012 was discussed at the May 22, 2012 joint Board
meeting. As noted in that discussion, the Board and staff targeted nonpublic
entities during its outreach. Many of the outreach activities were specifically
devoted to nonpublic entities and some of the outreach activities included both
nonpublic and public entities.
5.
Between September 2011 and May 2012, members of the Board and staff
conducted approximately 15 targeted nonpublic entity outreach activities and
several others in which nonpublic entities also were included. These nonpublic
entities represented many industries, including:
6.
(a)
Energy and utilities
(b)
Engineering and construction
(c)
Financial services
(d)
Healthcare
(e)
Higher education
(f)
Hospitality
(g)
Media and entertainment
(h)
Real estate
(i)
Software and technology.
The staff performed outreach to obtain feedback from users, preparers, and
independent public accountants from nonpublic entities. Feedback was received
through the following channels:
(a)
Comment letters on the November 2011 Exposure Draft
Page 2 of 10
(b)
Outreach and educational activities, including a formal roundtable (in
Salt Lake City, Utah), industry-specific workshops, in-person meetings,
conference calls, and webcasts
(c)
Meetings with the Small Business Advisory Committee, Private
Company Financial Reporting Committee, Not-for-Profit Advisory
Committee, AICPA Technical Issues Committee, and AICPA Not-forProfit Expert Panel
(d)
Conferences and meetings held by state CPA societies, industry groups,
trade associations, and others.
7.
In addition to the feedback received between September 2011 and May 2012,
members of the Board and staff conducted outreach with nonpublic entity
stakeholders following the publication of the June 2010 Exposure Draft and
throughout the redeliberations phase that led to the development and publication
of the November 2011 Exposure Draft. A summary of the feedback that was
received from nonpublic entities on the June 2010 Exposure Draft was presented
to the Board in December 2010.
8.
Consistent with the feedback discussed at the May 22, 2012 joint Board meeting,
overall, nonpublic entities expressed support for the underlying objectives and
principles of the November 2011 Exposure Draft. Approximately 25 of the 357
comment letters that the Board has received to date are from nonpublic entity
stakeholders. The majority of those comment letters were submitted by private
companies. In addition, approximately 20 additional comment letters represent the
views of professional service firms (mostly public accounting firms) that serve
nonpublic entities.
9.
Most of these respondents noted that many of their concerns about the June 2010
Exposure Draft were addressed in the November 2011 Exposure Draft. For
example, a majority of nonpublic entity respondents on the June 2010 Exposure
Draft were either small, privately held construction entities or the sureties who
provide credit to those construction entities. These construction industry
Page 3 of 10
respondents expressed concerns about the effect that the proposals would have on
the accounting for construction contracts. In response to the November 2011
Exposure Draft, one construction industry respondent stated:
Having been intimately involved in this entire process, we would
first like to express our gratitude to FASB in responding to a
number of the concerns we and other construction industry
representatives have expressed. Specifically, we want to
acknowledge the following improvements in the revised
exposure draft:

the ability to bundle promised goods or services which
are highly interrelated and where the goods or services
are significantly modified or customized to fulfill the
contract when it comes to the identification of
performance obligations (para. 29)

clarity provided around the transfer of control of a good
or service over time (paras. 35 & 36)

the elimination of an implied preference for output
methods over input methods in measuring progress
towards satisfaction of a performance obligation (para.
40)

the inclusion of a “most likely amount” method in
estimating variable consideration (para. 55)

relief from a number of disclosure requirements for nonpublic entities
We consider each of the above to be significant improvements
for the construction industry when compared to the original
exposure draft. (The Associated General Contractors of America,
CL #59)
10.
The incremental feedback of the main issues raised in both the comment letters
and outreach are grouped into the following categories. Those categories and the
issues outlined below correspond to the main feedback summary and the project
plan:
(a)
Other core proposals in the Exposure Draft:
(i)
Onerous performance obligations
(ii)
Annual disclosures
(iii) Transition and effective date.
Page 4 of 10
(b)
Discrete issues that affect only some types of transactions or industries:
(i)
Scope of the proposals—distinguishing contracts with
customers from collaborative arrangements
(ii)
Identifying the contract and customer.
Other core proposals
Onerous performance obligations
11.
The November 2011 Exposure Draft proposes that a not-for-profit organization
that enters into a contract for the purpose of providing a social or charitable
benefit would not be required to recognize a liability for an onerous performance
obligation. Many not-for-profit respondents agree with this proposal. However,
many of these respondents requested further clarification about the intent of the
guidance. For example, most not-for-profit organizations have a stated mission of
providing some form of social or charitable benefit that is either explicit or
implicit to every contract. Therefore, those respondents stated that all contracts of
not-for-profit organizations contribute in some way to their stated purposes of
providing a social or charitable benefit. Respondents requested that the Board
clarify how to distinguish between contracts that have a social or charitable benefit
and contracts that do not.
Annual disclosures
12.
The Exposure Draft indicates that nonpublic entities may elect not to provide the
following proposed disclosures:
(a)
A reconciliation of contract balances
(b)
The amount of the transaction price allocated to remaining performance
obligations and an explanation of when the entity expects to recognize
that amount as revenue
Page 5 of 10
(c)
A reconciliation of liability balances recognized from onerous
performance obligations
(d)
A reconciliation of asset balances recognized from the costs to obtain or
fulfill a contract with a customer
(e)
Specific details about an explanation of the judgments, and changes in
judgments, used in determining the timing of satisfaction of performance
obligations and in determining the transaction price and allocating it to
performance obligations.
13.
In addition, nonpublic entities would not be required to comply with the same
quantitative disaggregation revenue requirements as public entities. Instead,
nonpublic entities would disaggregate revenue (quantitatively) in accordance with
the timing of transfer of goods or services.
14.
Overall, most nonpublic entity stakeholders support the proposed disclosure
exemptions for nonpublic entities because these respondents indicated that many
of the proposed disclosure requirements would not be cost-beneficial for users of
nonpublic entity financial statements. However, a few users expressed concern
about providing different disclosure requirements for nonpublic entities because
the needs of financial statement users are not driven by organizational differences.
15.
Some respondents expressed concern about the intention of the proposed
disclosure about disaggregation of revenue. These respondents indicated that
information about the timing of transfer of goods or services may not depict the
best representation of the nature, amount, timing, and uncertainty of revenue and
cash flows of the entity. Therefore, these respondents suggested that the Board
either (a) exempt nonpublic entities from this requirement or (b) permit nonpublic
entities to choose another form of disaggregation that may provide more useful
information to their users and, hence, clarify that a nonpublic entity can
disaggregate revenue in the same manner as public entities.
Page 6 of 10
16.
Many not-for-profit organizations are concerned about the proposed disclosure
requirements because they are conduit debt obligors and, therefore, do not meet
the definition of nonpublic entity1 in the FASB Accounting Standards
Codification® that is used within the November 2011 Exposure Draft.
Consequently, these respondents do not qualify for the disclosure exemptions
permitted for nonpublic entities, and they share many of the same concerns about
the disclosure requirements that are summarized in the main feedback summary.
Many of these respondents suggested that the Board consider a different division
for disclosure exemptions rather than a public and nonpublic distinction.
Transition and effective date
17.
The November 2011 Exposure Draft proposes retrospective application of the
guidance with specified practical expedients. In addition, the proposals state that
the effective date of a final standard for nonpublic entities would be a minimum of
one year after the effective date for public entities. Nonpublic entities are
encouraged, but are not required, under U.S. GAAP to include comparable periods
in their financial statements.
18.
Similar to most public entities, many preparers of nonpublic entities do not agree
with the proposal to apply the standard retrospectively because the benefits of
including comparative revenue amounts in the financial statements may not
outweigh the costs of producing it. One nonpublic entity respondent noted:
To be sure, this cost will likely drive many nonpublic entities to
provide their financial statement users with only single-period
financial statements and thus avoid the retrospective application.
Single-period financial statements will deprive financial
statement users of comparability and be less beneficial to them.
1
Any entity that does not meet any of the following conditions:
a. Its debt or equity securities trade in a public market either on a stock exchange (domestic or
foreign) or in an over-the-counter market, including securities quoted only locally or regionally.
b. It is a conduit bond obligor for conduit debt securities that are traded in a public market (a
domestic or foreign stock exchange or an over-the-counter market, including local or regional
markets).
c. It files with a regulatory agency in preparation for the sale of any class of debt or equity securities
in a public market.
d. It is required to file or furnish financial statements with the Securities and Exchange Commission.
e. It is controlled by an entity covered by criteria (a) through (d).
Page 7 of 10
Further, users are likely to be confused and frustrated with the
varied application of the Proposed ASU to prior periods. Some
nonpublic entities will retrospectively apply the Proposed ASU
and others will not. User models and trend analysis will be on
two different sets of GAAP. To bridge these competing realities,
[we] recommend that requiring disclosure of the retroactive
impact of the Proposed ASU instead of retrospective
presentation may be the better alternative. Disclosure would help
reduce implementation costs and also provide the financial
statement users with comparative financial data. (Private
Company Financial Reporting Committee, CL #11)
19.
Many users of nonpublic entity financial statements support retrospective
application and noted that it is important to have comparative financial statements.
One user indicated:
We generally view full retrospective implementation as
optimum, because it is most helpful to our analysis of period-toperiod trends. Additionally, our ratings are on a relative basis, so
comparability of peer data is paramount. We therefore ask that
there be a synchronization of adoption dates for public and
nonpublic companies. (Standard & Poor’s, CL #275)
20.
Many nonpublic entity respondents support the one-year deferral, specifically if
there is a long lead time to implement the final standard. However, some
nonpublic entity respondents noted that an additional year (i.e., a total of two
years) will be necessary if they are required to implement the standard
retrospectively. Consistent with their views on disclosures, not-for-profit
organizations that do not meet the definition of a nonpublic entity indicated that
they do not agree with the public/nonpublic division for the one-year deferral.
Discrete issues that affect only some types of transactions or industries
Scope of the proposals—distinguishing contracts with customers from collaborative
arrangements
21.
Similar to the feedback indicated in the main feedback summary, some not-forprofit respondents questioned how the proposals would apply to sponsored
research agreements that are collaborative arrangements. These respondents stated
that their understanding is that sponsored research agreements that are not grants
Page 8 of 10
and are not collaborative arrangements are not within the scope of the proposals.
However, they indicated that the Exposure Draft does not provide sufficient
discussion on the topic to ensure consistency in application. For example, the
description of collaborative arrangement in paragraph 10 of the Exposure Draft
differs from the definition of collaborative arrangement in the Master Glossary of
the Codification. Paragraph 10 of the Exposure Draft states that a collaborator or
partner shares with the entity the risks and benefits of developing a product to be
marketed. The definition of collaborative arrangement in the Codification
requires that both parties of the arrangement be exposed to significant risks and
rewards dependent on the commercial success of the activity and that the two
parties are active participants in the activity. Not-for-profit organizations are
concerned that many research activities undertaken by not-for-profit organizations
do not fit into either definition. One respondent indicated:
We understand that it is necessary for an organization to consider
all relevant facts and circumstances in order to determine
whether an arrangement meets the definition of a contract with a
customer. In this case, however, sponsors of research contracts
are not active participants in that research and, as previously
discussed, outputs with commercial value are not typically an
objective of those contracts.
The ASU seems focused on entities that manufacture a product
or provide a service such as consulting. The research undertaken
by universities does not neatly fit into either of these categories.
We request, therefore, that the Board address the definitions of
both a customer and a collaborative arrangement in both the
ASU and the Codification to include contracts where no product
or service is created for commercial marketing. (National
Association of College and University Business Officers CL
#249)
Identifying the contract and customer
22.
Some nonpublic entity respondents, particularly from the healthcare industry,
expressed concern about the proposals because in many situations they find it
difficult to determine whether they have a contract with a customer and to identify
the customer in the contract.
Page 9 of 10
23.
Some respondents requested that the Board provide additional guidance about how
to determine if a contract exists, specifically with regard to uninsured self-pay
patients and the guidance in paragraph 14 of the Exposure Draft. Paragraph 14(b)
of the Exposure Draft indicates that a contract with a customer exists only if the
parties to the contract have approved the contract and are committed to perform
their respective obligations. These respondents requested clarity about the
intention of this paragraph. Some noted that many self-pay patients may not be
“committed to perform their respective obligations.” Therefore, a contract may not
exist. However, it is difficult to determine at contract inception for an individual
contract whether the customer is committed to perform.
24.
In addition, many healthcare transactions involve more than one party. For
example, a contract could include (a) a patient who receives the medical care, (b) a
physician who orders the required services on behalf of the patient, (c) the
hospital, and (d) a third-party payer such as an insurance company. Respondents
were not certain about how the proposed guidance would apply to account for
those various arrangements.
Page 10 of 10