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Accounting Standards Update Issue 12 D

On January 17, 2013 the Financial Accounting Standard Board’s Emerging Issues Task Force (“EITF”) finalized an issue related to accounting for obligations resulting from joint and several liability arrangements.

If the EITF’s consensus is ratified by the Financial Accounting Standards Board (“FASB”) at its January 30, 2013 meeting it will become final authoritative accounting guidance, in accordance with the effective dates contained in the consensus.

Issue 12-D—Accounting for Obligations Resulting from Joint and Several Liability Arrangements for which the Total Amount of the Obligation is Fixed at the Reporting Date

First let’s look at the issue requiring clarification. Under joint and several liability arrangements, the total amount of an obligation is wholly enforceable against any of the parties to the arrangement. For example, if four entities enter into a joint and several liability arrangement for $20 million, it is at least possible that one entity could be required to repay the entire $20 million. This would be the case even if the four entities created an internal allocation arrangement for repayment of the liability.

Diversity currently exists in the recognition and measurement of these obligations. Some entities record the entire amount of the obligation, while others only record the amount that they expect to pay. In cases where an entity only records the amount it expects to pay, this may or may not include a portion of amounts it considers owed by others due to a variety of factors, usually assessed under the ASC 450 contingencies model.

EITF reacts to feedback to June 2012 consensus

In June 2012, the EITF reached a consensus-for-exposure that joint and several obligations should generally be measured under existing contingencies guidance found in ASC 450. However, the EITF also determined that financial guarantee guidance should apply if the entity’s role is primarily that of a guarantor.

After evaluating feedback through comment letters, in January, the EITF amended its previous consensus to remove all references to guarantee guidance due to the impractical nature of applying such guidance.  Accordingly, for joint and several obligations, an entity should recognize the respective portion of the obligation it agrees to pay among its co-obligors and assess any additional amounts it expects to pay related to amounts borrowed by its co-obligors applying the measurement principles of the contingencies model under ASC 450.

Enhanced disclosures similar to those required for financial guarantees will be required for obligations with joint and several liability. The guidance will be effective for public entities for fiscal years and interim periods in those years beginning after December 15, 2013.  The effective date for nonpublic entities is deferred until annual periods ending after December 15, 2014 and to interim and annual periods thereafter. Early adoption is permitted.

For more information about complex accounting and disclosure requirements such as Issue 12-D, or other accounting developments, please email Bill Godshall, Lead Quality Control Partner and leader of our Public Company Audit and Advisory Practice at


FASBEITFASC 450accounting for obligations



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