FASB Clarifies the Interactions Between the Accounting for Equity Securities, Equity Method Investments, and Certain Derivative Instruments

January 16, 2020

The FASB has issued Accounting Standards Update (ASU) No. 2020-01, Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815, in response to the EITF’s consensus on Issue 19-A.

The ASU makes improvements related to the following two topics:

Accounting for certain equity securities when the equity method of accounting is applied or discontinued — The ASU clarifies that “an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method.”
Scope considerations related to forward contracts and purchased options on certain securities — The ASU clarifies that “for the purpose of applying paragraph 815-10-15-141(a) an entity should not consider whether, upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 323 or the fair value option in accordance with the financial instruments guidance in Topic 825.”

For more information, see Deloitte’s November 2019 EITF Snapshot newsletter as well as the press release on the FASB’s Web site.