Wiley GAAP 2019

19ASC 321 INVESTMENTS—EQUITY SECURITIES

PERSPECTIVE AND ISSUES

Technical Alert

ASU 2016-01.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU is the result of the FASB’s project on accounting for financial instruments. The goal of the project is to improve the usefulness of financial instruments reporting for decision makers. Simplification is expected to be an outcome of the project. This ASU is the first one issued as part of the financial instruments project. New impairment guidance is expected in 2016 as is an exposure draft on hedging.

Guidance.

The ASU affects guidance on:

• Equity investments that are not consolidated or accounted for under the equity method,
• Financial liabilities under the fair value option, and
• Presentation and disclosure requirements for financial instruments.

For equity securities with readily determinable fair value, the available-for-sale category has been eliminated.

For equity investments without readily determinable fair value, the ASU generally eliminates the cost method––cost less impairment, adjusted for subsequent observable price changes. However, some investments are eligible to use the cost method as a practical expedient and entities may choose to use it. The FASB separated the accounting for debt and equity securities. This resulted in the addition of ASC 321 and changes in terminology in the other investment ...