In a string of nip-and-tuck improvements to accounting standards, public companies have some new guidance to follow that will enable them to write off lingering gift card liabilities, shore up practice differences in hedge accounting, and simplify any transition to equity method accounting.

The guidance around gift cards is perhaps the most broadly applicable, says James Dolinar, a partner at Crowe Horwath and chairman of the Financial Reporting Executive Committee of the American Institute of Certified Public Accountants. Acting on a recommendation from the Emerging Issues Task Force, the Financial Accounting Standards Board adopted Accounting Standards Update No. 2016-04 to say companies can do some estimating and projecting about when a gift card liability can be removed from financial statements.

Despite the seeming economic illogic, some gift cards just don’t get spent. They may get buried in a desk drawer, lost in the trash, or contain tiny trapped amounts that consumers just never bother to redeem. Companies recognize a liability when they take in revenue for gift cards, and that liability is settled when the gift card is redeemed. If it’s never redeemed, referred to a “breakage” in the gift card world, it’s never coming off the books.

“Today in practice, this is one of those aspects of accounting that isn’t explicitly covered by any one standard,” says Dolinar, who is an observer to the EITF. “If you were to say the accounting treatment falls under the derecognition of a financial liability, you’d never be able to remove that liability from the books. It could stay there forever. People have asked if that is really the right answer.”

To address the problem, FASB hit the fast-forward button on a provision in the not-yet-effective standard on revenue recognition to apply it to the current rules around gift cards, says Dolinar. That model enables companies to use their own historical information on gift card redemption and apply some judgment to when a liability should be derecognized, says Dolinar. “FASB did the right thing in this situation,” he says.

On the hedge accounting front, FASB adopted two more recommendations from the EITF, resulting in ASU 2016-05 on contract novations and ASU 2016-06 on contingent put and call options in debt instruments.

The complexities of hedge accounting require companies to painstakingly match “critical terms” to show hedge effectiveness and assure a particular instrument qualifies for a short-cut accounting method. Companies have taken different views on whether a change in the counter party on an instrument, such as when one bank buys another, represents a change in the critical terms, says Dolinar.

That led to the new guidance on contract novations to indicate that a change in counter party on an instrument “does not in and of itself represent a de-designation of hedge effectiveness,” says Dolinar. “It is a modest change, but it will be helpful to modify diversity in practice.”

With respect to put and call options, FASB says companies have followed two different approaches in assessing those embedded options in a debt instruments, leading to different conclusions about whether they should be accounted for separately. FASB’s update to accounting standards clarifies the requirements to say companies should perform the assessment following the four-step decision sequence outlined in existing guidance without extra consideration for interest rates or credit risks.

Finally, FASB recently issued ASU No 2016-07 on equity method investments to simplify the accounting by eliminating the requirement to use the retrospective method of accounting when adopting the equity method of accounting. The board says stakeholders reported that adopting the method retroactively is costly and time consumting when an investment qualifies under certain circumstances, but doesn't provide a clear benefit to users of financial statements.

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