- Key insight: Learn why FASB is proposing changes to its equity method investment accounting rules.
- What’s at stake: Stakeholders struggling with complex earnings allocations and rising costs under current rules.
The Financial Accounting Standards Board issued a
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Some of FASB’s stakeholders pointed to challenges related to the equity method of accounting guidance during an agenda consultation last year. Those challenges include (1) the different criteria for applying the equity method to investments in corporations (and similar entities) and investments in partnerships (and similar entities), (2) the lack of authoritative guidance on allocating earnings in complex allocation structures for investments in non-real-estate entities and (3) the cost and complexity of applying the equity method.
To address those challenges and help cut down on overall cost and complexity, the proposed ASU would:
- Require a single threshold (significant influence) for applying the equity method, regardless of the legal form of the entity, and make certain changes to the indicators of significant influence in Subtopic 323-10, Investments—Equity Method and Joint Ventures—Overall; and,
- Clarify how the equity method is applied by investors that have equity method investments with complex allocation structures.
FASB is asking its stakeholders to review and provide comments on the proposed ASU by Jan. 11, 2027.
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