On January 5, 2016, the Financial Accounting Standards Board issued Accounting Standards Update: ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Liabilities. The amendments in this update are intended to address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The main provisions of this update are:
- It requires a company’s equity investments to be measured at fair value with changes in fair value recognized in earnings. This change results in removing the guidance to classify equity securities into available-for-sale or trading securities. Investments accounted for under the equity method of accounting or investments that result in consolidation are not included within the scope of this update.
- It allows a company to value equity investments without a readily determined fair value at cost, less any impairments. This update also simplifies the assessment of impairments of equity investments without a readily determined fair value by requiring a qualitative assessment similar to the approach to assess impairments for long-lived assets, goodwill or indefinite lived intangible assets. When this assessment indicates impairment, the investment is then required to be measured at fair value and the impairment should be recorded in earnings.
- Additionally, it eliminates disclosure requirements for private entities to disclose the fair value of financial instruments measured at amortized cost. Public entities will disclose the fair value of financial instruments measured at amortized cost but will no longer be required to disclose the methods and assumptions used to estimate their fair value.
For public entities, this update will be effective for fiscal years beginning after December 15, 2017. For all other entities, this update will be effective for years beginning after December 15, 2018. All non-public entities may early adopt this update for years beginning after December 15, 2017.
Above we have addressed some of the key changes to accounting reporting and disclosure of financial instruments as a result of this Update. To understand all the changes or to get help implementing this Update, JLK Rosenberger wants to help! Please call us at 818-334-8646, or click here to contact us. We look forward to speaking with you soon.