FASB Seeks Comments on Proposed Clarifications to the Interaction of Accounting Guidance for Equity Securities, the Equity Method of Accounting, and Derivatives and Hedging

FASB Seeks Comments on Proposed Clarifications to the Interaction of Accounting Guidance for Equity Securities, the Equity Method of Accounting, and Derivatives and Hedging

Response Requested by Aug. 15 for Task Force Members

On July 30, the Financial Accounting Standards Board (FASB) issued an exposure draft, which represents a consensus of the Emerging Issues Task Force. The amendments in the exposure draft would clarify the interaction of the accounting for equity securities under Topic 321, investments under the equity method of accounting in Topic 323, and the accounting for certain forward contracts and purchased options accounted for under Topic 815. The proposed amendments would affect all entities that apply the guidance in Topics 321, 323 and 815 and: 1) elect to apply the measurement alternative; or, 2) enter into a forward contract or purchase an option to purchase securities that, upon settlement of the forward contract or exercise of the purchase option, would be accounted for under the equity method of accounting.

If you are interested in participating in a Nareit task force that will evaluate the proposed amendments in the exposure draft, contact George Yungmann ( gyungmann@nareit.com) by Aug. 15. Comments on this exposure draft are due to the FASB no later than Aug. 29.

Below is a summary of the main provisions of the exposure draft:


Issue 1 – Accounting for Certain Equity Securities upon the Application or Discontinuation of the Equity Method of Accounting

The proposed amendments in this exposure draft would clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purpose of applying the measurement alternative in accordance with Topic 321 immediately before applying, or upon discontinuing, the equity method.

Issue 2 – Scope Considerations for Forward Contracts and Purchased Options on Certain Securities

The proposed amendments would clarify that for the purpose of applying paragraph 815-10-15-141(a), an entity should not consider whether, upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 323. An entity would also evaluate the remaining characteristics in paragraph 815-10-15-141 to determine the accounting for those forward contracts and purchase options.


Contact

George Yungmann (gyungmann@nareit.com) or Christopher Drula (cdrula@nareit.com).