Equity Securities - Bye Bye OTTI & OCI
By Magali Welch, CPA, CA, AIAF, Partner, Johnson Lambert LLP

This may not be on your radar, but did you know that FASB issued guidance requiring equity securities to be measured at fair value (FV) with changes in FV (unrealized gains/losses) recognized directly on the income statement? You will no longer have the option to recognize equity securities as available-for-sale with changes in FV flowing through other comprehensive income (OCI). You will also say “au revoir” to other-than-temporary-impairment (OTTI) as this will no longer be applicable.

This new guidance will apply to equity securities with readily determinable FVs, including investments in partnerships, unincorporated joint ventures, and limited liability companies, except for those accounted for under the equity method or are consolidated.

For equity investments that do not have readily determinable FVs, a practical expedient will be available to measure the securities at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The practical expedient for those securities needs to be reassessed at each reporting period.

Effective Dates
For public business entities (PBEs), the standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities, the standard is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Non-PBEs may early adopt the amendments, but no earlier than the PBE effective date.

Author:  Magali Welch, CPA, Partner (mwelch@johnsonlambert.com)

Pictured: Magali Welch, Johnson Lambert LLP