New ASU Simplifies Accounting for Investments

ASU equity methodThe Financial Accounting Standards Board (FASB) recently has issued a new Accounting Standards Update (ASU) 2016-7, Simplifying the Transition to the Equity Method of Accounting, which affects accounting for investments.  Under the new guidance, an investor must implement the equity method of accounting on the date that the change in ownership or degree of influence occurs with no retroactive adjustments necessary.  If an entity has an available-for-sale security that becomes qualified for the equity method of accounting, then the unrealized gain or loss position must be recognized in current year earnings.

FASB issued this update as part of an ongoing effort, known as the Simplification Initiative, to simplify generally accepted accounting principles (GAAP).  The update also brings GAAP more closely into alignment with guidance in International Financial Reporting Standards.

Stakeholders, including financial statement preparers and auditors, had communicated to the FASB that the current requirements related to retroactively applying the equity method of accounting to an investment are burdensome with no clear benefit to users of the financial statements.  Under current GAAP, when an investment qualifies for the equity method of accounting (which occurs when an investor holds more than 20% of the ownership in a company or is able to exert significant influence over the company’s management or operations), the investing entity is required to retroactively adjust its investment balance, results of operations, and retained earnings to reflect what its financial position would have been in prior periods if the investment was accounted for under the equity method.

The effective date of the new guidance is for fiscal years beginning after December 15, 2016, for all entities.  As the amendments are not costly to implement, the effective data is the same for both public and non-public business entities.  Early adoption is permitted.

If you have questions about this new ASU, or would like to request a speaker on this topic for your organization or event, contact one of our executives listed below, (800) 270-9629.


Matt Stuart

Matt Stuart

Principal

Mike Shamblin

Mike Shamblin

Managing Principal of Audit & Assurance Services

Related Posts
Are you feeling unease about the impending Tuesday, April 17 tax filing deadline? Fear not –the Internal Revenue Service (IRS) permits a taxpayer to file an extension to allow time...
Read More

The Tax Deadline Looms: Need More Time?

Businesses are increasingly reliant on technology to achieve organizational objectives. However, with the convenience and efficiency of technology come intensifying risks of data loss and theft. High-profile data breaches top...
Read More

Cybersecurity Framework “SOCs” It to Cyber Threats

The ink on the Tax Cuts and Jobs Act (TCJA), which swept in a tidal wave of changes to federal tax rules, had been dry for only seven weeks before...
Read More

New Budget Agreement Brings Additional Tax Changes

The Financial Accounting Standards Board (FASB) has set forth amended guidance aimed at simplifying and reclassifying certain features of financial instruments. Accounting Standards Update (ASU) No. 2017-11 – Earnings Per...
Read More

The Update on Down Round—FASB Reclassifies Earnings Per Share

The new Tax Cuts and Jobs Act is bringing sweeping reform to the United States tax code. While recent tax reform has drawn considerable media attention to domestic corporate tax...
Read More

The Bottom Line: How Will Recent Tax Reform Impact You?

Most Americans are now aware that new tax reform legislation, titled the 2017 Tax Cuts and Jobs Act, was signed into law late last year. There has been significant news...
Read More

Excess Employee Compensation Under the New Tax Reform Law: Will Your Tax-Exempt Organization Be Affected?

PYA is pleased to announce the promotions of Michael Ramey, Matt Stuart, and Jeff Pate to the level of Equity Principal. PYA has announced the promotion of Senior Manager Michael...
Read More

PYA Announces Three New Equity Principals

In today’s business environment, cloud computing arrangements play a key role in the day-to-day operations of companies large and small. The Financial Accounting Standards Board’s (FASB) Accounting Standards Update (ASU)...
Read More

Clearing Up Cloud Computing Accounting

An on-demand webinar, presented by Mike Shamblin, CPA, and brought to you by PYA, helps lay the foundation for the new revenue recognition standard.  The webinar guides healthcare providers of...
Read More

PYA On-Demand Webinar Outlines the New Revenue Recognition Standard in Preparation for Implementation

Share This Insight

If you received value from this article, please share it with your network (e.g., Facebook, Twitter, LinkedIn). Icons below for your convenience.

Stay Current

* indicates required
Monthly eNewsletters
See more newsletter and alert options.

PYA Population Health Ascend

PYA Healthcare Blog

PYA Thought Leadership Services

The Healthcare Loop