FASB proposed a standard that would clarify the interaction between its standard on recognition and measurement of financial instruments and its standard on equity method investments.
In 2016, FASB issued Accounting Standards Update (ASU) No. 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. That ASU added Topic 321, Investments — Equity Securities, and made targeted changes to rules for accounting for financial instruments.
One of those changes provided a company with the ability to measure certain equity securities without a readily determinable fair value at cost, minus impairment, if any, unless an observable transaction for an identical or similar security occurs. This is known as the measurement alternative. The proposal results from stakeholders' questions about the interaction of Topic 321 and Topic 323, Investments — Equity Method and Joint Ventures. The proposal would clarify that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323 for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method.
Comments were accepted until Aug. 29.