2.1 Introduction
An SEC registrant that has an equity method investee must consider
whether financial information about the investee should be provided in any reports
filed with the SEC that include the registrant’s financial statements. If an equity
method investee is considered significant to a registrant, the registrant may be
required to provide separate financial statements of the investee, summarized
financial information of the investee in the footnotes to its financial statements,
or both in certain filings with the SEC. Such filings may include periodic reports,
registration statements, and proxy statements.
In March 2023, the FASB issued ASU 2023-02, which updates the guidance
in ASC 323-740. The ASU expands the applicability of the proportional amortization
method (PAM) to investments that would otherwise be accounted for under the equity
method of accounting but that meet certain scope considerations in ASC 323-740-25-1.
When PAM is elected, the initial investment is amortized in proportion to the income
tax credits and other income tax benefits allocated to the investor. See Appendix D of Deloitte’s Roadmap Equity Method Investments and Joint Ventures
for discussions of PAM and ASU 2023-02.
At the June
2023 and June 2024 CAQ SEC Regulations Committee joint meeting with the
SEC staff, the staff discussed whether investments for which registrants elect to
apply PAM would be subject to Rules 3-09, 4-08(g), 8-03(b)(3), and 10-01(b)(1). The staff did not provide further guidance or
interpretation. Registrants that have material investments and have elected the
accounting policy choice to apply PAM may consider consulting with their audit and
legal professionals and reaching out to the SEC to discuss their fact patterns.