Discover 2015 Annual Report Download - page 108

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For investments in any entities in which the Company owns 50% or less of the outstanding voting stock but in
which the Company has significant influence over operating and financial decisions, the Company applies the equity
method of accounting. The Company also applies the equity method to its investments in qualified affordable housing
projects and similar tax credit partnerships. In cases where the Company's equity investment is less than 20% and
significant influence does not exist, such investments are carried at cost.
Recently Issued Accounting Pronouncements
In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial
Assets and Financial Liabilities. The ASU will have limited impact on the Company since it does not change the
guidance for classifying and measuring investments in debt securities or loans. The standard requires entities to measure
certain cost-method equity investments at fair value with changes in value recognized in net income. Equity investments
that do not have readily determinable fair values will be carried at cost, less any impairment, plus or minus changes
resulting from any observable price changes in orderly transactions for an identical or similar investment of the same
issuer. The guidance requires public entities to use the exit price notion when measuring the fair value of financial
instruments for disclosure purposes and requires separate presentation of financial assets and financial liabilities by
measurement category and form of financial asset (i.e. securities or loans) on the balance sheet or the accompanying
notes to the financial statements. The new guidance will become effective for the Company on January 1, 2018 and is
not expected to have a material impact to the financial statements.
In April 2015, the FASB issued ASU No. 2015-05, Intangibles-Goodwill and Other-Internal-Use Software
(Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. The guidance in this
update addresses whether a cloud computing arrangement contains a software license. Under the new guidance, a
cloud computing arrangement contains a software license if the customer has the contractual right to take possession of
the software at any time during the hosting period without significant penalty and provided it is feasible for the
customer to either host the software internally or with an external party unrelated to the original vendor. Upon meeting
both of these criteria, a customer should account for the software license within a cloud computing arrangement in a
manner consistent with the acquisition of other software licenses. This could potentially change the timing of expense
recognition associated with the contract. If a cloud computing arrangement does not meet both criteria, a customer will
account for the arrangement entirely as a service contract. The new guidance will become effective for the Company on
January 1, 2016. Management is in the process of evaluating existing contractual arrangements to determine whether
any will be impacted by the ASU.
In April 2015, the FASB issued ASU No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying
the Presentation of Debt Issuance Costs. The guidance in this update makes the presentation of debt issuance costs
consistent with that of debt discounts and premiums. The ASU requires that debt issuance costs related to a recognized
debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The
new guidance will become effective for the Company on January 1, 2016 and is not expected to have a material
impact to the financial statements.
In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the
Consolidation Analysis. The guidance in this update was issued to improve targeted areas of the accounting rules for
consolidation. The ASU changes the analysis companies will use to determine if certain types of legal entities should be
consolidated. In addition, it modifies the determination of whether a limited liability entity should be evaluated as a
variable interest entity ("VIE") or a voting interest entity and eliminates the presumption that a general partner should
consolidate a limited partnership. The amendments primarily triggered a review of the Company’s tax credit
investments, which typically utilize limited liability entities. As a result of that review, management determined its prior
conclusions associated with the Company's tax credit investments continue to be appropriate. The new guidance will
become effective for the Company on January 1, 2016.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The
guidance in this update supersedes existing revenue recognition requirements in Topic 605, Revenue Recognition,
including an assortment of transaction-specific and industry-specific rules. The ASU establishes a principles-based
model under which revenue from a contract is allocated to the distinct performance obligations within the contract and
recognized in income as each performance obligation is satisfied. ASU Topic 606 does not apply to rights or
obligations associated with financial instruments (for example, interest income from loans or investments, or interest
expense on debt), and therefore the Company’s net interest income should not be affected. The Company’s revenue
from discount and interchange, protection products, transaction processing and certain fees are within the scope of