Handbooks | August 2022

Insight

Handbook: Equity method of accounting

Latest edition: We explain the equity method of accounting in detail, providing examples and analysis.

Nick Burgmeier

Nick Burgmeier

Partner, Dept. of Professional Practice, KPMG US

+1 212-909-5455

Matt Drucker

Matt Drucker

Partner, Audit, KPMG US

+1 212-872-3584


Using Q&As and examples, KPMG provides interpretive guidance on equity method investment accounting issues in applying ASC 323. This August 2022 edition incorporates updated guidance and interpretations.

Applicability

  • All companies with equity method investments

Relevant dates

  • Effective immediately

Still standing

The FASB has made sweeping changes in the last two decades to the accounting for investments in consolidated subsidiaries and equity securities. However, it has left the accounting for equity method investments largely unchanged since the Accounting Principles Board released APB 18 in 1971. 

The Accounting Principles Board developed the equity method with the view that its one-line consolidation premise would “best [enable] investors…to reflect the underlying nature of their investment[s].”

Notwithstanding that some have advocated eliminating the equity method of accounting, its principles have remained intact – often bending, but not yet breaking – as the capital markets evolve. New and unique investment structures often challenge those principles and push the profession to make critical judgments about their application in today’s financial reporting environment.

Our objective with this publication is to help you make those critical judgments. We provide you with equity method basics and expand on those basics with insights, examples and perspectives based on our years of experience in this area. We navigate scope, deconstruct initial measurement, and examine subsequent measurement – including how to analyze complex capital structures, demystify dilution transactions and outline presentation, disclosure and reporting considerations. 

Report contents

  • Scope
  • Initial recognition and measurement
  • Recognizing investee activity
  • Recognizing investor-level adjustments
  • Changes in ownership and degree of influence
  • Presentation and disclosure

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