Guidelines for Equity Method of Accounting Simplified by the FASB

The FASB has decided to simplify the guidelines for the equity method of accounting.  The major changes will be:

  • Differences in bases of balance sheet items at the date of acquisition will no longer be required to be amortized, as is required when preparing consolidated financial statements.
  • When an investment accounted for under the cost method qualifies for the equity method, it will no longer be applied retroactively.  The equity method will instead be applied from the date on which the investment qualifies.

An exposure draft for the equity method simplification is due in Q2 2015.  After that, it has to go through an Exposure Draft Comment Period and an Exposure Draft Re-deliberations phase before making it to Final Standard status.

The new standard will be issued after a 90 day comment period and, if there are no significant comments, it will take another 90 days to draft the standard. This pronouncement is expected to be issued in late 2015 or early 2016.  It will most likely be eligible for testing around July of 2016.

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