FASB issued an Accounting Standards Update (No. 2020-01) that clarifies the interaction between accounting standards related to equity securities, equity method investments, and certain derivatives. The Accounting Standards Update is based on a consensus of the Emerging Issues Task Force of FASB. The amendments in this Update clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 as well as the accounting for certain forward contracts and purchased options under Topic 815.
The amendments in this Update affect all entities that apply the guidance in Topics 321, 323, and 815 and 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 amendments include the following:
- Accounting for Certain Equity Securities on the Application or Discontinuation of the Equity Method of Accounting. The amendments clarify 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 on discontinuing the equity method.
- Scope Considerations for Forward Contracts and Purchased Options on Certain Securities. The amendments clarify that, when determining the accounting for certain forward contracts and purchased options an entity should not consider, whether on settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option.
For public business entities, the amendments in the Update become effective for fiscal years beginning after December 15, 2020 and for interim periods within those fiscal years. For all other entities, the amendments become effective for fiscal years beginning after December 15, 2021 and for interim periods within those fiscal years.
Keywords: Americas, US, Banking, Securities, Accounting, Derivatives and Hedging, Financial Instruments, Topic 321, Topic 815, Topic 323, Accounting Standards Update, FASB
Previous ArticleEBA Assesses Application of Regulatory Standards on Identified Staff
The European Commission (EC) published the Delegated Regulation 2022/786 with regard to the liquidity coverage requirements for credit institutions under the Capital Requirements Regulation (CRR).
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying the criteria to identify shadow banking entities for the purposes of reporting large exposures.
The European Insurance and Occupational Pensions Authority (EIOPA) published a report assessing insurers' exposure to physical climate change risks
The Network for Greening the Financial System (NGFS) published two reports to aid central banks and regulators in their oversight of the financial sector and in their central bank operations
The European Commission (EC) published the results of a public consultation, held in October 2021, on the review of the Web Accessibility Directive.
The Monetary Authority of Singapore (MAS) and the SC-STS are jointly consulting, until June 10, 2022, on setting adjustment spreads for the conversion of legacy SOR contracts to SORA reference rate.
The Office of the Superintendent of Financial Institutions (OSFI) published the strategic plan for 2022-2025 and the departmental plan for 2022-23.
The European Banking Authority (EBA) is consulting, until August 31, 2022, on the draft implementing technical standards specifying requirements for the information that sellers of non-performing loans (NPLs) shall provide to prospective buyers.
The European Council and the Parliament reached an agreement on the revised Directive on security of network and information systems (NIS2 Directive).
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying information that crowdfunding service providers shall provide to investors on the calculation of credit scores and prices of crowdfunding offers.