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FASB issues ASU simplifying equity method

  • FASB (US Financial Accounting Standards Board) (lt blue) Image

Mar 16, 2016

On March 16, 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-07, “Simplifying the Transition to the Equity Method of Accounting,” as part of its simplification initiative.

The ASU simplifies the equity method of accounting by eliminating the requirement to retrospectively apply the equity method to an investment that subsequently qualifies for such accounting as a result of an increase in the level of ownership interest or degree of influence. Further, the ASU requires that unrealized holding gains or losses in accumulated other comprehensive income related to an available-for-sale security that becomes eligible for the equity method be recognized in earnings as of the date on which the investment qualifies for the equity method.

The amendments improve consistency with IFRS, which do not require retroactive adjustment when an investment becomes qualified for the equity method.

The amendments in the ASU are effective for annual reporting periods, and interim periods therein, beginning after December 15, 2016. Early adoption is permitted.

For more information, see Deloitte’s related journal entry as well as the ASU on the FASB’s Web site.

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