FASB proposal addresses prepaid card breakage

A proposal FASB issued 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 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 certain characteristics.

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.

Comments were due June 29 at FASB’s website.