FASB proposal addresses breakage associated with certain unredeemed cards

By Ken Tysiac

A proposal FASB issued Thursday is designed to reduce diversity in practice related to the derecognition of liabilities associated with prepaid stored-value cards such as certain gift cards.

FASB’s Emerging Issues Task Force (EITF) helped develop the proposed Accounting Standards Update, Liabilities—Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Cards.

According to the proposal, diversity currently exists in the methodology used to derecognize the portion of the nonrefundable dollar value of prepaid cards that ultimately is unredeemed, which is known as “breakage.”

The proposed amendments would apply to entities that sell prepaid stored-value cards that have all of the following characteristics:

  • The cards have no expiration date.
  • The cards are not subject to unclaimed property laws.
  • The cards are redeemable for any of the following:
  1. Cash.
  2. Goods or services only at third-party merchants (e.g., only at a merchant that accepts prepaid stored-value cards on a specific card network).
  3. Both 1 and 2.
  • The cards are not attached to a segregated bank account like a customer depository account.

The proposed amendments would provide a narrow-scope exception to the liabilities guidance in Subtopic 405-20. The proposal would require that the breakage guidance in the new revenue recognition standard (Topic 606) be used to account for liabilities from prepaid cards with the characteristics above.

The EITF will consider comments received before determining an effective date. Comments can be made by June 29 at FASB’s website.

Ken Tysiac ( ktysiac@aicpa.org ) is a JofA editorial director.


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