Financial Reporting

AcSEC Releases Proposed SOP on Use of Equity Method

In late November AcSEC issued an exposure draft (ED) of a statement of position (SOP), Accounting for Investors’ Interests in Unconsolidated Real Estate Investments. The proposed SOP would supersede SOP 78-9, Accounting for Investments in Real Estate Ventures and provide guidance on accounting, according to GAAP, for investors’ interests in unconsolidated real estate investments. It focuses on who should apply equity method accounting to unconsolidated real estate investments and how they should apply it. The ED’s equity-method approach uses a balance-sheet-based methodology known as “hypothetical liquidation at book value.”

Since SOP 78-9 has been broadly applied to sectors other than real estate, AcSEC is particularly interested in feedback from practitioners familiar with accounting for investors’ interests in those areas.

The committee specifically requests comments on the following issues addressed in the ED:

When to use the equity method.

How to apply the equity method in several different contexts.

Other matters that are related to equity accounting.

The effective date and transition requirements for the proposed SOP.

If approved, the SOP would be effective for fiscal years beginning after December 15, 2001, with earlier adoption encouraged. Until April 15, 2001, AcSEC will accept comments on the ED, which is available on the Web at www.aicpa.org/members/div/acctstd/edo/reexsum.htm.

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