FASB Issued Two Drafts to Simplify Accounting

The FASB continued its efforts to simplify financial reporting by issuing separate proposals designed to:

  1. simplify the equity method of accounting, and
  2. improve employee share-based payment accounting

Equity Method of Accounting

The exposure draft Investments—Equity Method and Joint Ventures (Topic 323): Simplifying the Equity Method of Accounting, issued Friday, would eliminate the requirement for an equity-method investor to account for the basis difference.

The draft states:

The Board is proposing to eliminate the requirement for an equity method investor to account for the basis Payment difference, which is the difference between the cost of an investment and the investor’s proportionate share of the net assets of the investee. Under existing equity method guidance, an entity determines the acquisition date fair value of the identifiable assets and liabilities assumed in the same manner as for a business combination. The entity’s proportionate share of the difference between the fair value of the investee’s identifiable assets and liabilities assumed and the book value of recorded assets and liabilities generally must be accounted for in net income in subsequent periods.

Share-Based Payment Accounting

The other exposure draft, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, issued Monday, is intended to simplify several aspects of accounting for share-based payment transactions.

The draft states:

The areas for simplification in this proposed Update involve several aspects of the accounting for share-based payment transactions, including:

  • the income tax consequences,
  • classification of awards as either equity or liabilities, and
  • classification on the statement of cash flows

 

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