IMA Financial Reporting Committee comment letter on Proposed Accounting Standards Update (ASU) No. 2019-740, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815
Tuesday, August 27, 2019
The IMA Financial Reporting Committee (FRC) issued a comment letter in response to the FASB’s Proposed ASU No. 2019-740, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. In this release, the FASB proposes several Codification amendments to clarify the current guidance regarding the following:
Applying the measurement alternative in Topic 321, Financial Instruments—Equity Securities, versus the equity method of accounting under Topic 323, Investments—Equity Method and Joint Ventures
Identifying the guidance that an entity must apply to certain forward contracts and purchase contracts if, upon settlement or exercise, the entity must account for the securities under the equity method of accounting.
In its response, the FRC generally supports the FASB’s proposed changes that clarify when an entity must apply the measurement alternative versus the equity method of accounting. With respect to the proposed accounting for forward and purchase contracts for securities, however, the Committee raises concerns about contracts that result in the acquisition of a noncontrolling interest.
In addition, the FRC observes that the current guidance regarding the equity method of accounting rests largely on the original APB 18, The Equity Method of Accounting for Investments in Common Stock. In light of more recent models on long-term interests in an investee, it may be beneficial for the Board to consider a broad project on Topic 323.
The IMA Financial Reporting Committee (FRC) issued a comment letter in response to the FASB’s Proposed ASU No. 2019-740, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. In this release, the FASB proposes several Codification amendments to clarify the current guidance regarding the following:
Applying the measurement alternative in Topic 321, Financial Instruments—Equity Securities, versus the equity method of accounting under Topic 323, Investments—Equity Method and Joint Ventures
Identifying the guidance that an entity must apply to certain forward contracts and purchase contracts if, upon settlement or exercise, the entity must account for the securities under the equity method of accounting.
In its response, the FRC generally supports the FASB’s proposed changes that clarify when an entity must apply the measurement alternative versus the equity method of accounting. With respect to the proposed accounting for forward and purchase contracts for securities, however, the Committee raises concerns about contracts that result in the acquisition of a noncontrolling interest.
In addition, the FRC observes that the current guidance regarding the equity method of accounting rests largely on the original APB 18, The Equity Method of Accounting for Investments in Common Stock. In light of more recent models on long-term interests in an investee, it may be beneficial for the Board to consider a broad project on Topic 323.
