The Financial Accounting Standards Board (FASB) has issued an Accounting Standards Update (ASU) to help organisations align their accounting for production costs for films and episodic content produced for television and streaming services.
In recent years the entertainment industry has undergone a significant change in production and distribution models which has seen the growth of online streaming services which use subscription-based revenue models, such as Netflix and Amazon Prime Video.
According to research conducted by PwC, Netflix surpassed cable and satellite usage in the US for the first time in 2018.
Current accounting guidance provides organisations in the entertainment industry with differing capitalisation requirements for content production:
- For films, production costs are capitalised.
- For episodic content (for example, a TV series that airs a new episode each week), production costs are capitalised subject to a constraint based on contracted revenues in the initial and secondary markets.
FASB chairman Russell Golden said: “Stakeholders told us that the current capitalization guidance doesn’t enable organizations that use subscription-based revenue models to provide relevant information to investors.
“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.”
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The standard addresses when an organisation 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 organisation provide new disclosures about content that is either produced or licensed
- Addresses cash flow classification for license agreements
For public companies, the standard is effective for fiscal years beginning after 15 December 2019, and interim periods within those fiscal years.
For all other organisations, the standard is effective for fiscal years beginning after 15 December 2020, and interim periods within those fiscal years. Early adoption is permitted.