The EITF recently reached consensus on issues related to NAV disclosures and dropdown transactions for master limited partnerships. For NAV disclosures, instruments using the practical expedient will be exempt from fair value hierarchy classification and disclosure, but disclosed as a reconciling item. For dropdown transactions, the general partner must retroactively adjust historical earnings per unit to account for the transfer as if it occurred on the earliest date of common control. The EITF also reached consensus-for-exposure drafts on issues related to electricity contracts, prepaid stored-value cards, and employee benefit plan simplification.

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measurement. Although the instrument’s redemption
features would generally impact the fair value of
the instrument under ASC 820, such terms are not
considered in reporting the NAV when the practical
expedient is applied. However, reporting entities do
consider these terms and conditions when determining
the level to classify the valuation in accordance with
the fair value hierarchy (terms which prevent the
receipt of redemption or liquidation proceeds for a
period of greater than 90 days generally result in a
level 3 classification).
The EITF agreed in its most recent meeting that
instruments reporting the NAV practical expedient are
exempt from classification and disclosure within the
fair value hierarchy, because the classification of an
instrument measured using the practical expedient
within the fair value hierarchy based on when
redemption provisions are inconsistent with the fair
value hierarchy. Under the consensus, instruments
using NAV measurements will be disclosed as a
reconciling item to the fair value hierarchy table in the
notes to the financial statements. The disclosure relief
will apply only to those instruments that are reporting
using the practical expedient. Therefore, classification
and disclosure within the fair value hierarchy will
remain a requirement for instruments reported as
NAV, however, for which the practical expedient is not
applied.
The EITF also clarified guidance for the presentation
of the cash flow statement for investment companies.
Under the consensus an investment company would
The Financial Accounting Standards Board’s (FASB)
Emerging Issues Task Force (EITF) recently met
to discuss open issues. During the March meeting,
the task force reached final consensus on two EITF
issues, and arrived at consensus-for-exposure drafts
on three additional issues.
Consensus Reached
The EITF reached final consensus on Issue 14-A
Effects on Historical Earnings per Unit of Master
Limited Partnership Dropdown Transactions and Issue
14-B Disclosures for Investments in Certain Entities
that Calculate Net Asset Value per Share during its
March meeting. The FASB also decided to approve
these final decisions. Both issues are expected to be
issued as final Accounting Standards Updates (ASUs)
during the second quarter of 2015.
NAV Disclosures
The EITF’s discussion about net asset value (NAV)
resulted from the project on simplification of ASC
Topic 820, Fair Value Measurement. ASC 820 permits
certain types of financial instruments to be reported
at the NAV as a practical expedient for the fair value
April 2015
Recent Updates from the Emerging Issues Task Force

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not be required to prepare a statement of cash flows
if substantially all its investments are 1) classified as
level 1 or level 2 measurements, or 2) are redeemable
in the near term and measured using the NAV practical
expedient. The task force elected to not define “near
term.” As a result, there may remain diversity in
practice as “near term” is commonly interpreted to be
90 days, however, may be interpreted to be a period
up to 180 days or a year by some reporting entities.
The change is proposed to be effective for public
entities in fiscal years beginning on or after December
15, 2015, and for nonpublic entities in fiscal years
beginning on or after December 15, 2016. Early
adoption is permitted and retrospective adoption is
required.
Dropdown Transactions
As a result of the creation of a master limited
partnership, the general partner often “drops down”
assets to the master limited partnership in return for
additional ownership rights. If the general partner is
in control of the master limited partnership throughout
the process, it must account for the asset exchange
as a common control transaction.
ASC Topic 260 Earnings Per Share requires the
general partner to retroactively adjust its earnings
per unit and other elements of its financial statements
to present the dropdown transaction as if it occurred
on the earliest date the entities were under common
control. The EITF reaffirmed its decision to require
any earnings or losses from the dropdown assets that
occurred prior to the transfer to the master limited
partnership to be allocated to the general partner when
reporting historical earnings per unit. Additionally, the
task force reaffirmed its decision that master limited
partnerships include disclosures regarding how rights
to earnings or losses changed after the dropdown
transaction.
Consensus for Exposure Draft
The EITF also reached consensus-for-exposure draft
on Issue 15-A Application of the Normal Purchases and
Normal Sales Scope Exception to Certain Electricity
Contracts within Nodal Energy Markets, Issue 15-B
Recognition of Breakage for Prepaid Stored-Value
Cards, and Issue 15-C Employee Benefit Plan
Simplifications. Exposure drafts are expected to be
issued by the FASB on each of these issues during
the second quarter of 2015.
Employee Benefit Plan Simplification
Employee benefit plans measure fully benefit-
responsive contracts at contract value, but are also
required to present a reconciliation from contract
value to fair value. The EITF proposed that these
contracts be exempt from fair value measurement and
disclosure. However, if during the evaluation process,
an employee benefit plan determines the investment
contract cannot be realized at contract value, the
contract is no longer considered benefit-responsive
and must be measured at fair value.
Plan asset disaggregation was also addressed in the
task force’s discussion. The EITF determined that
plan assets should be separated by general type
either on the face of the financial statements or in the
related notes. Eliminating the required disclosures
to segment out net appreciation/depreciation of plan
assets by asset type, and the disclosure for individual
investments that are greater than or equal to 5 percent
of the total net assets available for plan benefits was
also discussed. A plan would also be exempt from
certain disclosures for investments in funds that file
form 5500 as a direct filing entity and are measured
at NAV.
In addition, the EITF suggested that employee benefit
plans could measure plan assets on a date that

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The information in this MHM Messenger is a brief summary and may not include all the details relevant to your situation.
Please contact your MHM auditor to further discuss the impact on your audit or audit report.
is nearest to the plan’s year end if the fiscal period
does not correspond with the end of a month, which
is consistent with the proposal for the plan sponsor’s
reporting for the plan. However, additional disclosure
requirements would be triggered if entities were to
elect an alternative measurement date.
Prepaid Stored-Value Cards
Liabilities are created when a financial institution or
other entity issues a no-fee prepaid card for a third-
party merchant to a consumer. The entity issuing the
card recognizes a liability for its obligation to pay a
merchant for the goods or services the merchant
provides to the cardholder. This liability is extinguished
once the consumer uses the card.
The recently issued ASC Topic 606: Revenue from
Contracts with Customers, provides guidance about
how entities should derecognize the liability and
recognize income when the gift card remains unused
for long periods of time, referred to as breakage.
However, when the entity issuing the gift card is not
the merchant, a question arose as to whether the gift
card would be accounted for as a financial liability
under ASC Topic 405 Liabilities, and therefore not fall
within the scope of the guidance on breakage.
The task force created a consensus-for-exposure
that no-fee prepaid cards without an expiration date
qualify as financial liabilities for the issuing entity,
but that breakage should be accounted similar to
ASC Topic 606, so long as the cards are not subject
to escheatment laws. Should the consensus be
approved, reporting entities impacted would also be
subject to the reporting requirements for liabilities
detailed in ASC Topic 825.
Electricity Contracts within Nodal Energy Markets
Entities record derivative contracts at fair value
with changes in the fair value recognized through
earnings. Reporting entities may be exempt from fair
value measurement if the contract qualifies for the
normal purchases and sales scope exception and the
appropriate election is made. The exception requires
that physical delivery of the underlying is probable
throughout the life of the contract.
EITF Topic 15-A addresses whether forward contracts
for electricity within a nodal energy market meet the
physical delivery criterion in the normal purchases and
sales scope exception. During the meeting, the task
force reached a consensus-for-exposure that such
arrangements meet the physical delivery criterion.
However, reporting entities would still be required to
examine all other requirements necessary to apply
the normal purchase, normal sale scope exception
before determining if they qualify.
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