ACCTFAX Winter 2021

Published January 13, 2022 By Philip Miller, Greg Taylor, and Bill Erlenbush

Originally published in The Cooperative Accountant, Winter 2021 Issue

FASB PROPOSES IMPROVEMENTS TO FAIR VALUE GUIDANCE FOR EQUITY SECURITIES 

On September 15, 2021, the Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update (ASU) that would improve financial reporting for investors and other financial statement users by increasing comparability of financial information across reporting entities that have investments in equity securities measured at fair value that are subject to contractual restrictions preventing the sale of those securities. Stakeholders were encouraged to review and provide comment on the proposed ASU by November 14, 2021. 

Topic 820, Fair Value Measurement, states that when measuring the fair value of an asset or a liability, a reporting entity should consider the characteristics of the asset or liability, including restrictions on the sale of the asset or liability, if a market participant also would take those characteristics into account. Key to that determination is the unit of account for the asset or liability being measured at fair value. 

Some stakeholders noted that Topic 820 contains conflicting guidance on what the unit of account is when measuring the fair value of an equity security. This has resulted in diversity in practice on whether the effects of a contractual restriction that prohibits the sale of an equity security should be considered in measuring that equity security’s fair value. 

To address this, the amendments in the proposed ASU would clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. 

The proposed ASU is available at www.fasb.org. 

NEW FASB STANDARD IMPROVES CONSISTENCY IN ACCOUNTING FOR ACQUIRED REVENUE CONTRACTS WITH CUSTOMERS IN A BUSINESS COMBINATION 

On October 28, 2021, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) that addresses diversity in practice related to the accounting for revenue contracts with customers acquired in a business combination. 

“The new ASU provides specific guidance on how to recognize and measure contract assets and contract liabilities related to revenue contracts with customers acquired in a business combination,” stated FASB Chair Richard R. Jones. “This will align the accounting for these acquired contracts to the accounting for revenue contracts originated by the acquirer and will provide more comparable information to investors and other financial statement users seeking to better understand the financial impact of these acquisitions.” 

To read the full article, visit https://nsacoop.org/publications/tca or NSAC Connect