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On The Horizon: Entertainment production accounting changes proposed

RFP
On the Horizon newsletterContents FASB
Improvements proposed to account for certain entertainment production costs
Highlights from Nov. 7 meeting posted
Staff paper discusses revenue recognition for private company franchisors

SEC
Small Entity Compliance Guide released
CorpFin updates C&DIs for revised ‘smaller reporting company’ definition



FASB Improvements proposed to account for certain entertainment production costs To align the accounting for production costs for episodic content produced for television and streaming services with the accounting for production costs for film, the FASB issued the proposed ASU, Entertainment – Films – Other Assets – Film Costs (Subtopic 926-20) and Entertainment – Broadcasters – Intangibles – Goodwill and Other (Subtopic 920-50): Improvements to Accounting for Costs of Films and License Agreements for Program Materials (a consensus of the FASB Emerging Issues Task Force). The proposed amendments would apply to broadcasters and entities that produce and distribute films and episodic television series.

Under the existing accounting guidance in ASC 926-20 related to episodic content, such as television series airing a new episode each week, production costs are capitalized subject to a constraint based on contracted revenues in the initial and secondary markets. Specifically, production costs for episodic television series are capitalized up to the amount of revenue contracted for each episode in the initial market, until either persuasive evidence exists that revenue from secondary markets will occur or an entity can demonstrate a history of earning revenue in that market. For films, however, all production costs specified in ASC 926-20 are capitalized. Production costs that are capitalized are referred to as “content assets.”

Under the proposal, entities would apply the same accounting guidance to production costs for episodic content that is applied to production costs for films, removing the existing constraint on capitalizing production costs for episodic content that is based on contracted revenues in the initial and secondary markets.
 
The proposal would also amend the existing guidance related to

  • Amortization of content assets, including a proposed requirement to reassess the estimates of the use of a film or a film group, and to account for any resulting changes prospectively
  • Impairment of content assets, including (1) the unit of account used for impairment evaluations, (2) impairment indicators, and (3) the model used for measuring impairment
  • Derecognition of a film that is abandoned either because the film project is abandoned before release or because the film is removed from the entity’s offering for the foreseeable future
  • Presentation, classification, and disclosure of content assets

The Board will determine the effective date of the proposed amendments, and whether entities can early adopt the new guidance, after it considers stakeholders’ feedback on the proposal. The proposed amendments related to capitalizing film costs would be applied prospectively to film costs that are incurred on or after the effective date of the proposed amendments. The proposed amendments related to the impairment, amortization, presentation, and disclosure guidance would be applied in the first period that includes the effective date.

The FASB staff also issued proposed taxonomy improvements related to the proposed ASU. 

Comments on the proposed ASU and on the related proposed taxonomy improvements are due Dec. 7. 

Highlights from Nov. 7 meeting posted All decisions reached at Board meetings are tentative and may be changed at future meetings. 

The Board met on Nov. 7 to discuss whether it should propose amendments to certain topics within the guidance in ASC 326, Financial Instruments – Credit Losses (ASU 2016-13), as discussed during the Credit Losses Transition Resource Group meeting earlier this month.

The Board’s tentative decisions related to each of these topics, along with its other actions, are summarized below.

Recoveries
The Board tentatively decided to reaffirm a prior tentative decision that would require an entity to include recoveries when determining the allowance for credit losses. However, it also tentatively agreed to reverse a prior tentative decision that would have limited recoveries to amounts received only from the borrower when determining the allowance for credit losses.

Negative allowances 
The Board tentatively decided to permit an entity to record a negative allowance on financial assets if the negative allowance does not exceed the aggregate amount of the asset’s previous or expected write-off. For financial assets within the scope of the collateral-dependent subsequent measurement guidance in ASC 326-20-35-4 through 35-5, an entity would be permitted to record a negative allowance for the increase in fair value if the net amount expected to be collected is not greater than the amounts previously written off. 

Vintage disclosures 
The Board tentatively agreed to clarify the existing guidance for disclosing financial assets measured at amortized cost by stating that entities should present gross recoveries and gross write-offs both by vintage year and by class of financing receivable within the credit quality information vintage disclosure described in ASC 326-20-50-6.

In addition, an entity would be required to disclose the amounts of line-of-credit arrangements converted to term loans by origination year when an entity makes an additional credit decision after the original credit decision. An entity would not be required to disclose these amounts, however, if either

  • The lender makes no additional credit decision after the original credit decision.
  • These arrangements are converted because of a troubled debt restructuring.

In these instances, an entity would instead disclose these arrangements in a separate column within the vintage disclosure.

Contractual extensions
The Board tentatively decided to require an entity to evaluate extension or renewal options, including those options accounted for as derivatives under the existing guidance in ASC 815, Derivatives and Hedging, that are included in the original or modified contract and that cannot be unconditionally cancelled by the entity when determining the contractual term of a financial asset or assets.

Next steps
The Board directed the staff to draft a proposed ASU incorporating the proposed amendments based on (1) these tentative decisions discussed above, excluding those related to vintage disclosures of gross write-offs and gross recoveries, and (2) tentative decisions from the Board’s August 29 and September 5 meetings. This proposal would have a comment period of 30 days. The Board then directed the staff to draft a separate proposed ASU for the proposed amendments based on the tentative decisions related to vintage disclosures of gross write-offs and gross recoveries, with a comment period of 60 days.

Refer to the Sept. 6 On the Horizon and the Sept. 13 On the Horizon for a summary of the tentative decisions from the Aug. 29 and Sept. 5 meetings.
 
Staff paper discusses revenue recognition for private company franchisors The FASB released an educational staff paper that provides examples intended to assist private company franchisors preparing to implement ASC 606 in 2019.

For more information, including a link to the FASB staff paper, please read the FASB’s News Release.



SEC Small Entity Compliance Guide released Small Entity Compliance Guides summarize and explain rules adopted by the SEC, but they are not a substitute for SEC rules. Only an SEC rule provides complete and definitive information regarding its requirements.

The staff of the SEC’s Division of Corporation Finance recently issued a Small Entity Compliance Guide to summarize key provisions of the Final Rule, Disclosure Update and Simplification. Among other things, this guide includes a list of entities affected by the Final Rule, summarizes amendments that could change the information a registrant is required to disclose, and recaps the eliminated disclosures.

For more information on the Final Rule, refer to our New Developments Summary article, “SEC simplifies disclosure requirements.”

CorpFin updates C&DIs for revised ‘smaller reporting company’ definition The Compliance and Disclosure Interpretations described below reflect the views of the SEC staff. They are not rules, regulations, or statements of the SEC and have not been approved by the Commission. The interpretations are intended as general guidance and should not be relied on as definitive.

The staff of the SEC’s Division of Corporation Finance (CorpFin) recently updated questions 102.01, 102.02, and 202.01 in its Regulation S-K Compliance and Disclosure Interpretations (C&DIs), as well as question 104.13 in its Exchange Act Forms C&DIs, to provide implementation guidance on the provisions in the Final Rule, Amendments to Smaller Reporting Company Definition.

Further, questions 110.01 and 133.09 in the Regulation S-K C&DIs and questions 130.04 and 169.01 to 169.03 in the Exchange Act Rules C&DIs, which are no longer applicable, were withdrawn.

For more information on the Final Rule, refer to our New Developments Summary article on revising the SEC’s “smaller reporting company” definition and CorpFin’s Small Entity Compliance Guide.



© 2018 Grant Thornton LLP, U.S. member firm of Grant Thornton International Ltd. All rights reserved. This Grant Thornton LLP On the Horizon provides information and comments on current accounting and SEC reporting issues and developments. It is not a comprehensive analysis of the subject matter covered and is not intended to provide accounting or other advice or guidance with respect to the matters addressed in this publication. All relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to arrive at conclusions that comply with matters addressed in this publication. For additional information on topics covered in this publication, contact a Grant Thornton client-service partner.