FASB's Ratification of Recent EITF Consensuses

Date01 May 2016
Published date01 May 2016
© 2016 Wiley Periodicals, Inc.
Published online in Wiley Online Library (wileyonlinelibrary.com).
DOI 10.1002/jcaf.22165
FASB’s Ratification of Recent EITF
Oscar J. Holzmann and Paul Munter
At its meeting of December 11,
2015, the Financial Accounting
Standards Board (FASB) ratified
the consensuses reached at the
November 12, 2015, meeting of
the Emerging Issues Task Force
(EITF) on the issues presented
below.1 The EITF reached a final
consensus on the following issues:
• No. 15-B: “Recognition of
Breakage for Certain Pre-
paid Stored-Value Products”
• No. 15-D: “Effect of
Derivative Contract Nova-
tions on Existing Hedge
Accounting Relationships”
• No. 15-E: “Contingent Put
and Call Options in Debt
The Board is developing
final Accounting Standards
Updates (ASUs) based on each
of these final consensuses.
The EITF reached a con-
sensus-for-exposure for eight of
the nine classification questions
being considered in Issue No.
15-F, “Statement of Cash Flows:
Classification of Certain Cash
Receipts and Cash Payments.”
A proposed ASU has been
issued for comment based on the
EITF’s consensus-for-exposure.2
At its December 11, 2015,
meeting, the Board ratified the
final consensus reached by the
EITF on November 12, 2015,
that an entity’s liability for a
prepaid stored-value card or
product (whether in physical
or digital form) is a financial
liability within the scope of
Accounting Standards Codifi-
cation (ASC) Subtopic 405-20,
Liabilities–Extinguishment of
Liabilities. The EITF consen-
sus will create a narrow-scope
exception to the Subtopic 405-
20 derecognition guidance that
will require breakage account-
ing consistent with ASC Topic
606, Revenue From Contracts
With Customers, for liabilities
resulting from the sale of prepaid
stored-value products.
Prepaid stored-value prod-
ucts (commonly in card form,
but also on smartphone apps
and in some cases in paper
form such as traveler’s checks)
are in essence special currency
units issued and sold privately
to be given as gifts or otherwise
as a means of payment to unre-
lated merchants that entitles
the holder to redeem the prod-
uct at a third-party merchant
for goods, services, and/or cash.
Upon selling a prepaid stored-
value product, the seller recog-
nizes a liability to the customer
for its obligation to provide
it with the ability to purchase
goods or services from the
third-party merchant. This lia-
bility to the customer is extin-
guished in total or in part when
the customer redeems the card
at the merchant’s business. At
this point, the entity no longer
has a liability to the customer;
instead, it now has a liability
to the merchant, which will be
paid in cash through an estab-
lished settlement process. A dis-
tinction may be made between
these liabilities based on their
nature: the liability to the cus-
tomer is nonfinancial because it
will be settled by a third party
delivering a product or service,
while the liability to the mer-
chant is financial because it is
settled with cash. Because the
seller ultimately settles the obli-
gation by paying cash to the
third-party merchant, the EITF
concluded that the liability is a

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