FASB proposes changes to the accounting for equity-method investments

FASB is seeking feedback on a proposed Accounting Standard Update (ASU) aimed at improving the operability of the accounting for equity-method investments.

According to a news release, stakeholders have identified challenges related to the equity method of accounting guidance. They have until Jan. 11, 2027, to comment on proposed targeted improvements in response to the concerns.

The challenges noted include different criteria for applying the equity method to investments in corporations (and similar entities) and investments in partnerships (and similar entities); a lack of authoritative guidance on allocating earnings in complex allocation structures for investments in non-real-estate entities; and the cost and complexity of applying the equity method.

To address the feedback and help reduce cost and complexity, the proposed ASU would:

• Require a single threshold (significant influence) for applying the equity method, regardless of the legal form of the entity, and make certain changes to the indicators of significant influence in FASB Accounting Standards Codification Subtopic 323-10, Investments — Equity Method and Joint Ventures — Overall.
• Clarify how the equity method is applied by investors that have equity-method investments with complex allocation structures.

— To comment on this article or to suggest an idea for another article, contact Bryan Strickland at Bryan.Strickland@aicpa-cima.com.