FASB proposed an Accounting Standards Update (ASU) to clarify interaction between the accounting standard on recognition and measurement of financial instruments and the accounting standard on equity method investments. Until August 29, 2019, stakeholders can comment on the proposed ASU, which is based on a consensus of the Emerging Issues Task Force (EITF) of FASB. The amendments in the proposed ASU would clarify the interaction of the accounting for equity securities under Topic 321 and investments under the equity method of accounting in Topic 323, along with the accounting for certain forward contracts and purchased options accounted for under Topic 815.
The amendments in the proposed ASU would affect all entities that apply the guidance in Topics 321, 323, and 815 and either elect to apply the measurement alternative or enter into a forward contract or purchase an option to purchase securities that, on settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting. The key proposed amendments include the following:
- Accounting for Certain Equity Securities on Application or Discontinuation of the Equity Method of Accounting—The proposed ASU 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 on discontinuing the equity method.
- Scope Considerations for Forward Contracts and Purchased Options on Certain Securities—The proposed ASU provides guidance on questions received about how to apply the guidance in Topic 815 on "Derivatives and Hedging" for certain forward contracts and purchased options to purchase securities that, on settlement or exercise, would be accounted for under the equity method of accounting.
Comment Due Date: August 29, 2019
Keywords: Americas, US, Banking, Securities, Accounting, Derivatives and Hedging, Financial Instruments, Topic 321, Topic 815, Topic 323, Accounting Standards Update, FASB
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