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Some Private Company Shares to Be Valued at Cost in Planned Financial Instruments Standard

The FASB plans to keep the impairment guidance for shares in private companies from its proposed changes to financial instruments accounting. The decision means that shares in private companies will be carried at their historical cost plus or minus any changes in price.

The FASB agreed at its August 20, 2014, meeting to keep the impairment guidance for shares in private companies from the proposed changes to financial instruments accounting it published in February 2013.

The decision means that shares in private companies will be carried at their historical cost plus or minus any changes in price as described in Proposed Accounting Standards Update (ASU) No. 2013-220, Financial Instruments—Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities. The shares will follow the proposed guidance if they aren’t eligible for an estimate of their fair value that follows what the FASB calls a practical expedient.

The board also asked its research staff to spend more time studying writedowns of shares accounted for with the equity method of accounting.

The board is also considering a move that may turn one of its proposed disclosure requirements for some derivatives into a separate project. The board wants to release a proposal with a detailed tabular disclosure for so-called hybrid instruments that include embedded derivatives. The table should include the derivatives’ carrying amount, measurement attribute, and the line item on the balance sheet that includes which the derivatives and their underlying assets or liabilities. The FASB still has to determine how long a comment period to give the proposal.

In a separate discussion, the FASB assessed how businesses and other organizations can employ more discretion in applying the U.S. GAAP’s disclosure requirements to defined benefit plans. But the board didn’t reach a decision.

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