Norwalk, CT, July 30, 2019—The Financial Accounting Standards Board (FASB) today issued a proposed Accounting Standards Update (ASU) that would clarify the interaction between the accounting standard on recognition and measurement of financial instruments and the accounting standard on equity method investments. Stakeholders are asked to review and provide comment on the proposed ASU, which is based on a consensus of the FASB's Emerging Issues Task Force (EITF), by August 29, 2019.
In 2016, the FASB issued Accounting Standards Update No. 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which added Topic 321, Investments—Equity Securities, and made targeted improvements to address certain aspects of accounting for financial instruments. One of those improvements provided a company with the ability to measure certain equity securities without a readily determinable fair value at cost, minus impairment, if any, unless an observable transaction for an identical or similar security occurs (the measurement alternative).
The proposed ASU results from stakeholder questions about the interaction of Topic 321 and Topic 323, Investments—Equity Method and Joint Ventures, and would clarify that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323 for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The proposed ASU also provides guidance on questions received about how to apply the guidance in Topic 815, Derivatives and Hedging, for certain forward contracts and purchased options to purchase securities that, upon settlement or exercise, would be accounted for under the equity method of accounting. These proposed amendments would reduce diversity in practice and increase comparability of the accounting for these interactions.
The proposed ASU, including information about how to submit comments, is available at www.fasb.org.