Defining Issues | March 2016

FASB eliminates retroactive application of equity method

KPMG reports on ASU 2016-07, which amends ASC 323. The FASB issued the ASU to eliminate the requirement to retroactively apply the equity method when an investment becomes an equity method investee.


ASU 2016-07

  • Company with an investment that qualifies for the equity method of accounting following an increase in the level of ownership

Effective dates:

Mandatory effective dates and early adoption provisions:

Effective date:

    All entities

Annual periods – Fiscal years beginning after

    Dec. 15, 2016

Interim periods – In fiscal years beginning after

    Dec. 15, 2016

Early adoption allowed?



Key impacts

  • Amendments to ASC Topic 323.
  • ASU simplifies transition to the equity method for companies, but creates challenges in comparability
  • New guidance more closely aligns with other US GAAP (e.g. consolidation guidance) and reduces the burden on preparers

Report contents

  • Effective date
  • Available-for-sale equity securities
  • FASB drops proposal to eliminate basis differences



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