In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-07, Investments – Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting. This ASU was issued as part of FASB’s Simplification Initiative to reduce the costs and complexities of accounting principles generally accepted in the United States (U.S. GAAP), while maintaining or improving usefulness of the information to financial statement users.
The amendments of this ASU eliminate the requirement to retroactively adopt the equity method of accounting when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or the degree of influence. Instead, the equity method investor is now required to add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest, and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting treatment. Additionally, the amendments of this ASU require that entities with available-for-sale equity securities that become qualified for the equity method of accounting now must recognize the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment qualifies for the use of the equity method.
The amendments of this ASU are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively, and earlier adoption is permitted. No additional disclosures are required upon adoption of the ASU.
If you have any questions, concerns, or would like additional information on the aforementioned, please contact your HW&Co. executive.