FASB Proposes Amendments to Accounting for Television Production Costs
The US Financial Accounting Standards Board (FASB) has issued the proposed Accounting Standards Update (ASU), Entertainment—Films—Other Assets—Film Costs (Subtopic 926-20) and Entertainment—Broadcasters—Intangibles— Goodwill and Other (Subtopic 920-350): Improvements to Accounting for Costs of Films and License Agreements for Program Materials.
The amendments in the proposed ASU are based on an Emerging Issues Task Force (EITF) consensus-for-exposure. The amendments, if adopted as proposed, would align the accounting for production costs for films and episodic content produced for television and streaming services. The comment due date is 7 December 2018.
Under current accounting guidance, capitalisation requirements for entertainment industry content production are different depending on the type of content being produced. For films, the production costs are capitalised. For episodic television series that air new episodes periodically, production costs are capitalized subject to a constraint based on contracted revenues in the initial and secondary markets.
Recently, the production and distribution models for episodic television series have changed significantly with the expansion of the availability and popularity of online streaming services. These services have introduced new participants and different business models into the industry, including subscription-based revenue models. Given the differences in these models, some stakeholders have questioned whether the constraint in the capitalisation guidance for episodic content still provides relevant information to investors.
The proposed ASU would converge the capitalisation guidance for films and episodic content. It would also address when a company or organisation should assess films and license agreements for program material for impairment at the film-group level, while amending the presentation and disclosure requirements for content that is either produced or licensed.