Rules to Clarify Sales of Nonfinancial Assets Out in 2017

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By Steve Burkholder

Real estate investment trusts, pharmaceutical companies and electrical power producers will have clearer rules early in 2017 on how to account for certain sales of nonfinancial assets, after U.S. accounting standard-setters approved plans to issue new guidance on the topic.

The Financial Accounting Standards Board advanced Dec. 14 what will be a final accounting standards update aimed at following up release in 2014 of—and clarifying—rules on booking gains and losses from transfers of nonfinancial assets in contracts with non-customers under ASC 610-20.

Those rules are part of the new, far-reaching standard on revenue recognition—ASU 2014-09, ASC 606—which prescribe accounting for revenue from contracts with customers.

The one-stop revenue rules, which replace some 180 different pieces of industry-specific guidance, will have broad effects on financial reporting. They do away with specific accounting prescriptions, revealing a few gaps in accounting, which led to the more recent rulemaking by FASB.

Focus on Partial Sales

The planned new standard on sales of nonfinancial assets, to be issued in the first quarter of 2017, focuses in part on accounting for partial sales of nonfinancial assets.

The guidance endorsed by FASB Dec. 14 will fill a void in accounting for sales of nonfinancial assets in non-revenue transactions, financial executives at pharmaceutical giant Bristol-Myers Squibb Co. told FASB in a letter earlier this year.

That company, along with competitor Eli Lilly and Co., electric power provider NextEra Energy Inc. and the National Association of Real Estate investment Trusts, or NAREIT, generally supported FASB’s direction in its rulemaking. They stated their support in comment letters submitted last summer on a draft standard on the topic.

NAREIT ‘Happy’ With FASB Action

Two executives overseeing financial standards for NAREIT told Bloomberg BNA Dec. 14 that they are happy with FASB’s action to advance to a final standard. The board’s new guidance would fill an absence of accounting rules on sales of nonfinancial assets and partial sales of such items.

Christopher Drula, a NAREIT vice president, said in a conference call with the group’s George Yungmann, senior vice president for financial standards, that the association still advocates that FASB take on a broader project on derecognition, as stated in the group’s Aug. 5 comment letter to the board. Derecognition is taking assets or liabilities off a balance sheet.

That would include “sales of investments in real estate joint ventures where substantially all of the assets in the venture are investment properties,” according to the NAREIT letter.

Revenue Rule Questions

Companies have said they are uncertain about how they should account for partial sales of nonfinancial assets once the major changes in revenue reporting become effective, which would be in January 2018 for public companies—he same effective date for the planned guidance advanced by FASB Dec. 14.

Partial sales of nonfinancial assets are common in the real estate sector, FASB’s staff stated in background materials on its rulemaking. Those transactions include deals in which the seller retains an equity interest in the entity that owns the assets or has an equity interest in the buyer.

Operating, But Treated as Real Estate

NextEra Energy, the parent of Florida Power & Light Co., told FASB that it often enters into transactions that lead to the partial sale of equity interests in power plant entities, while keeping a controlling interest in the entities.

“Under current guidance, most power plants are considered to be integral equipment” and are treated as real estate, “even though they are operating businesses,” NextEra wrote in its Aug. 5 comment letter to the board.

“As a result, the sale of a noncontrolling equity interest in a power plant entity is currently subject” to accounting rules governing sales of real estate, the electricity producer stated.

To contact the reporter on this story: Steve Burkholder in Norwalk, Conn. at

To contact the editor responsible for this story: S. Ali Sartipzadeh at

For More Information

A project update on the board's effort on clarifying the scope of ASC 610-20 and partial sales of nonfinancial assets is available at

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