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At a glance
The FASB has proposed changes to the guidance for companies that elect to use the measurement alternative
or enter into forward contracts or purchased options on certain equity securities.
On July 30, the FASB issued an exposure draft proposing amendments that would clarify certain interactions
among ASC 321, ​Investments - Equity Securities
​, ASC 323 -​ Investments - Equity Method and Joint Ventures
ASC 815 -​ Derivatives and Hedging.
The proposed amendments clarify that:
● Observable transactions that result in a company applying (or discontinuing) the equity method of
accounting for an investment should be considered for purposes of applying the measurement alternative in
● Entities will be required to account for forward purchase contracts and purchased options to purchase
securities under ASC 321, including when the shares received in the purchase or exercise will be
accounted for under ASC 323. These transactions will be measured ​at fair value at contract inception with
any change in fair value recorded in earnings through the settlement or exercise date. ​The proposed
guidance would not apply to forward contracts to purchase a controlling financial interest in an acquiree,
arrangements that are deemed to be in-substance common stock within the scope of ASC 323, or
derivatives accounted for under ASC 815.
Why is this important?
Diverse views have emerged about the application of the measurement alternative and the equity method of
accounting since the adoption of ASC 321. The proposed amendments could impact companies that hold equity
securities accounted for under ASC 321 or equity method investments accounted for under ASC 323.
The FASB has requested comments on these matters by August 29, 2019. The effective date of the proposed
amendments will be determined based on stakeholder feedback. The proposed updates would be applied
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In brief | ​1
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