Aug 10, 2015
From the Financial Reporting View
KPMG LLP recently commented on the proposed FASB ASU, Simplifying the Equity Method of Accounting, which would eliminate the requirements under the equity method of accounting to account for the difference between the cost of an investment and the investor’s proportionate share of the net assets of an investee (the basis difference), and retroactively apply the equity method when an increase in ownership interest in the investee triggers a change from the cost method to the equity method. The FASB issued the proposal as part of its Simplification Initiative.
KPMG supports the proposal to eliminate the requirement to retroactively present the equity method of accounting when the equity method initially applies to a previously-held, non-consolidated investment. However, KPMG believes that eliminating the requirement to account for basis differences would not achieve the FASB’s objective of simplification. KPMG stated that eliminating the accounting for basis differences may actually increase complexity in some cases, such as other-than-temporary impairments, and will reduce the usefulness of information provided to financial statement users. KPMG provided examples to illustrate some of the unintended consequences that the proposed ASU may produce. KPMG also suggested that the Board develop a broader strategy to address complexity in financial reporting.