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FASB changes accounting for equity investments and financial liabilities

Defining Issues | January 2016

The proposals on equity-linked instruments with down-round features aim to make the accounting guidance easier to use.

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KPMG reports on ASU 2016-01, which changes accounting under ASC 825. The FASB’s ASU significantly impacts the recognition of equity investment measurement changes and changes in the fair value of financial liabilities under the fair value option.

Applicability

ASU 2016-01

  • Company that holds equity investments
  • Company with financial liabilities

Relevant dates

Mandatory effective dates and early adoption provisions:

Effective date

Public business entities

All other entities

Annual periods – Fiscal years beginning after

Dec. 15, 2017

Dec. 15, 2018

Interim periods – In fiscal years beginning after

Dec. 15, 2017

Dec. 15, 2019

Early adoption allowed?

Immediately, but only for fair value changes in financial liabilities for financial statements not yet been issued

Dec. 15, 2017

Immediate adoption for elimination of previously required disclosures of fair values in Subtopic 825-10-50 for financial statements not yet issued

Key Impacts:

  • Amendments to ASC Topic 825
  • Income statement volatility will increase because entities must recognize changes in the measurement of equity investments in net income
  • Changes in an entity’s credit risk will not affect earnings when the fair value option is elected

Report contents

  • Equity investments
  • Financial liabilities
  • Deferred tax assets
  • Disclosures
  • Effective date

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FASB changes equity investment and financial liabilities accounting

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