FASB Finalizes New Guidance for Accounting for Stored-Value Products

Accounting for customer obligations (stored-value products) has long been a hot topic within the restaurant industry, and in March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-04, Liabilities-Extinguishment of Liabilities (Subtopic 405-20). The guidance is expected to further impact accounting for stored-value products.

The ASU amends Subtopic 405-20 to exempt prepaid stored-value products from the guidance on extinguishing liabilities.  They will instead be subject to breakage accounting consistent with the new revenue standard in Topic 606.  However, the exemption only applies to breakage liabilities that are not subject to unclaimed property laws or that are attached to segregated bank accounts, such as consumer debit cards. The amendments in the new standard are effective for public business entities, certain not-for-profit entities, and certain employee benefit plans for financial statements issued for fiscal years beginning after December 15, 2017, as well as interim periods within those fiscal years.  For all other entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019.  Earlier application is permitted, including adoption in an interim period.  The amendments in this ASU should be applied either using a modified retrospective transition method by means of a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year in which the guidance is effective, or retrospectively to each period presented.
We advise you to become familiar with this new guidance and understand how this will impact your financial reporting and decision-making. In addition to the impact this guidance has on your balance sheet, it may also have implications for your debt covenants and other financial matters.

BDO has released detailed guidance on the ASU, which can be found here

And be sure to keep up with our practice’s latest thoughts by following us on Twitter at @BDORestaurant.