Accounting for Minority Equity Investments: A Small Change with Significant Implications

In 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-01, which adopts a new standard that will require companies to generally change the way they account for equity investments of less than 20%.

The new standard, which has largely flown under the radar to date, will apply to all investments in equity securities and other ownership interests (including investments in partnerships, unincorporated joint ventures and limited liability companies) other than those that are consolidated in the financial statements of the investor or accounted for using the equity method. In practice, that means it will apply to most equity investments below a 20% ownership threshold, absent other indicia of control that could require use of the equity method. The new standard goes into effect for public companies in 2018 and is available here.

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