The Financial Accounting Standards Board (FASB) has issued an Accounting Standards Update (ASU) that helps organizations align their accounting for production costs for films and episodic content produced for television and streaming services. In recent years, the entertainment industry experienced a significant change in production and distribution models. For example, online streaming services have introduced subscription-based revenue models. However, current accounting guidance provides organizations in the entertainment industry with differing capitalization requirements for content production:
- For films, production costs are capitalized.
- For episodic content (for example, a TV series that airs a new episode each week), production costs are capitalized subject to a constraint based on contracted revenues in the initial and secondary markets.
“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 G. Golden. “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 addresses when an organization should assess films and license agreements for program material for impairment at the film-group level. The amendments in the standard also:
- Amend presentation requirements
- Require that an organization provide new disclosures about content that is either produced or licensed, and
- Address cash flow classification for license agreements.
For public companies, the standard is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other organizations, the standard is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The ASU and a brief video on the standard are available at www.fasb.org.
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Tags: Accounting
