At the January 2019 meeting, the Task Force redeliberated the issue based on feedback received on the proposed Accounting Standards Update (ASU), issued November 7, 2018. With only minor changes, the Task Force affirmed the decisions in the exposure draft as a final consensus.
If ratified by the FASB, a final ASU will be released on the consensus.
Currently, the guidance in ASC 926-20, Entertainment-Films, provides a capitalization model for episodic content that is different than the model for films. Production costs for episodic content are capitalized subject to a constraint based on contracted revenues in the initial and secondary markets, while film costs are fully capitalized. The internet and streaming platforms have changed the business environment in which media is produced and distributed. The changes in distribution models, new participants in the industry, and new business models challenge the relevance of the constrained capitalization model for episodic content.
At the January 2019 meeting, the Task Force affirmed the consensuses reached at the September meeting to align the cost capitalization guidance for episodic and film costs. They also confirmed the consensuses related to the impairment, amortization, and presentation and disclosure of the capitalized costs, with a few modifications.
The Task Force reached final consensus that the unit of account for impairment should be the lowest level for which identifiable cash flows are largely independent of the cash flows of other films and license agreements. The Task Force agreed that the amended impairment model should include both developed films and licensed content as a single unit of account if the content does not have independent cash flows.
The Task Force noted that assessing impairment at the lowest level of identifiable cash flows, irrespective of whether the content is a developed film or licensed content, would be consistent with the economics of how companies monetize their content. For example, if an entity is monetizing its content through a single subscription model, the entity should assess the entire film group for impairment as a single unit of account.
The Task Force reached final consensus that the definition of a film group will include a predominance concept, such that content that is monetized through both direct and indirect revenue streams would be assessed for impairment based on the predominant monetization strategy.
Based on feedback received on the proposed ASU, the Task Force agreed to require companies to reassess the predominant monetization strategy of a film when a significant change in monetization strategy occurs. However, the reassessment would not be triggered by a change in expected results of the strategy. The Task Force affirmed its previous consensus to amend the impairment indicators for both individual films and a film group and add new impairment indicators for a film group.
The Task Force also reached a final consensus to make conforming amendments to ASC 920-350, Intangibles - goodwill and other, to require the use of a fair value model when assessing impairment (as required in ASC 926-20) rather than the net realizable value model currently required by ASC 920-350.
Under the individual film forecast method, an entity is currently required to review and revise estimates of ultimate revenue as of each reporting date. If estimates are revised, entities are required to update their estimate of ultimate revenue from the beginning of the fiscal year and account for the change prospectively as of the beginning of the year. If entities are not using the individual film forecast computation method due to a lack of direct revenue, and are instead basing amortization on expected use, there is currently no specific guidance on accounting for changes in estimates of usage.
The Task Force reached final consensus that entities not using the individual film forecast computation method must reassess their estimates of amortization each reporting period and account for any changes prospectively.
ASC 926-20 requires film costs to be classified as noncurrent on the face of the balance sheet, whereas ASC 920-350 requires licensed content assets to be segregated on the balance sheet between current and noncurrent based on the estimated time of usage.
The Task Force reached final consensus to remove the classification requirements in both sections, as different classification conclusions may be appropriate in different scenarios depending on the specific facts and circumstances. As a result, entities would use judgment to determine the appropriate classification (e.g., licensed content of less than one year could be current, whereas film costs that will benefit multiple years could be noncurrent).
Further, the Task Force agreed to maintain the current requirement to separately present licensed content from produced content on the balance sheet given their different natures and characteristics.
The Task Force also reached a final consensus to add additional disclosure requirements that would apply to both produced and licensed content.
Finally, based on feedback received on the proposed ASU, the Task Force agreed to eliminate the proposed requirement to separately disclose information regarding theatrical films and direct-to-television products, as those disclosures would not be relevant if content is being monetized as part of a film group. The Task Force agreed to instead require the components of costs and amortization to be separately disclosed for films predominantly monetized individually and those predominantly monetized as part of a film group.
ASC 926-20 currently requires cash outflows for film content to be classified as operating activities, while ASC 920-350 does not contain any guidance for licensed content. The Task Force agreed to conform ASC 926-20 and ASC 920-350 to require cash outflows for both developed film content and licensed content to be presented as operating activities.
The Task Force reached a final consensus to require prospective transition. Disclosures would include the nature of and reasons for the change in accounting principle, the transition method, and a qualitative description of the financial statement line items affected by the change. The Task Force also agreed that the amendments should be applied at the beginning of the interim period of adoption.
The Task Force agreed that all proposed amendments should apply to private companies.
The Task Force agreed that the final consensus should be effective for public business entities for fiscal years beginning on or after December 15, 2019, and interim periods within those fiscal years. For other entities, the amendments will be effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption will be permitted in any interim period after release of the final ASU.
National Professional Services, PwC US