FASB changes accounting for episodic TV series

The Financial Accounting Standards Board issued an accounting standards update Wednesday to adjust the way companies account for the production costs of films and episodic content produced for TV and online streaming services.

In recent years, FASB noted, the entertainment industry has undergone a major change in its production and distribution models, as streaming services such as Netflix and Hulu have introduced subscription-based revenue models.

However, the current accounting guidance offers different capitalization requirements for content production for entertainment industry companies. For films, production costs are capitalized, but for episodic content (such as a TV series that shows a new episode each week), production costs are capitalized subject to a constraint based on contracted revenues in the initial and secondary markets.

FASB meeting
Financial Accounting Standards Board meeting at FASB headquarters in Norwalk, Connecticut

“Stakeholders told us that the current capitalization guidance doesn’t enable organizations that use subscription-based revenue models to provide relevant information to investors,” said FASB chairman Russell Golden in a statement. “The new standard converges the guidance for films and episodic content. This better reflects the economics of an episodic television series and improves the information provided to investors about the various types of produced and licensed content.”

The standard explains when a company should assess films and license agreements for program material for impairment at the film-group level. The standard also amends the presentation requirements, includes a requirement that an organization offer additional disclosures about content that’s either licensed or produced, and addresses cash flow classification for license agreements.

For public companies, the standard takes effect for fiscal years starting after Dec. 15, 2019, and interim periods within those fiscal years. For all other organizations, the standard is effective for fiscal years starting after Dec. 15, 2020, and interim periods within those fiscal years. FASB is also allowing for early adoption of the standard.

The standards update and a brief video explaining the new standard are available on FASB's website.

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