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FASB Amends Prepaid Cards Guidance

Updating its guidance for prepaid cards, the Financial Accounting Standards Board (“FASB”) has published Accounting Standards Update (ASU) No. 2016-04, Liabilities — Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products, a Consensus of the FASB’s Emerging Issues Task Force. ASU No. 2016-04 was issued in part because of the lack of U.S. GAAP guidance concerning the derecognition of the liabilities from prepaid, store-value cards. The FASB’s goal is to reduce accounting inconsistencies for such liabilities.

The amendments in ASU No. 2016-04 consider liabilities from prepaid card sales as financial liabilities. In addition, a card’s remaining dollar balance must be accounted for using the guidance under Accounting Standards Codification (ASC) 606-10-55-46, Revenue From Contracts With Customers — Overall — Implementation Guidance and Illustrations — Customers’ Unexercised Rights, through ASC 606-10-55-49.

Public companies are required to apply the new amendments for fiscal years and quarters beginning after December 15, 2017. All other entities must apply the changes for fiscal years beginning after December 15, 2018. Private companies and nonprofits have an additional year to apply the amendments for interim periods.

Early adoption of the amendments is permitted, and retrospective application is required.

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