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9.7 Equity security disclosure requirements
Publication date: 13 Nov 2019
us Financial statement presentation guide
ASC 321-10-50 provides disclosure guidance on investments in equity securities.
9.7.1 Measurement alternative disclosures
As explained in LI 2, ASC 321-10-35-2 provides an elective measurement alternative for equity securities without readily determinable fair values. ASC 321-10-50-3 lists specific disclosure requirements for investments measured under this method.
In each interim and annual reporting period, ASC 321-10-50-3 requires the following disclosures for equity investments that are accounted for under the measurement alternative:
- The carrying amount of these equity investments
- The amount of impairments and downward adjustments, if any, on both an annual and cumulative basis
- The amount of upward adjustments, if any, on both an annual and cumulative basis
- Additional information (in narrative form) that is sufficient to permit financial statement users to understand the quantitative disclosures and the information that the entity considered in reaching the carrying amounts and upward or downward adjustments resulting from observable price changes.
We believe that the disclosures required by ASC 321-10-50-3 should only include equity investments that are held by the reporting entity at the end of the period.
Additionally, as the measurement alternative is a nonrecurring fair value measurement, an entity should follow the applicable disclosure requirement in ASC 820-10-50 for nonrecurring fair value measurements.
Impairments and adjustments due to observable prices
ASC 321-10-50-3(b) specifically requires disclosure of the upward and downward adjustments to equity investments without readily determinable fair values for which the measurement alternative is used on a gross basis; they should not be combined into one net number. However, we believe that downward adjustments due to impairments and downward adjustments due to observable price changes can be combined for the purposes of this disclosure. Reporting entities should consider whether separate presentation of impairments and downward adjustments due to observable price changes would provide decision-useful information to users of the financial statements.
9.7.2 Disclosures for all equity investments
Separate from the disclosures for equity investments accounted for under the measurement alternative, ASC 321-10-50-4 requires reporting entities to disclose the amount of unrealized gains and losses for all equity investments for each period in which a statement of operations is presented. This disclosure includes equity investments accounted for under the measurement alternative and equity investments that are reported on a fair value basis.
ASC 321 provides an example of the formula for calculating the unrealized gains and losses to be disclosed.
Excerpt from ASC 321-10-50-4
Net gains and losses recognized during the period on equity securities |
$105 |
|
Less: Net gains and losses recognized during the period on equity securities sold during the period |
(80) |
|
Unrealized gains and losses recognized during the reporting period on equity securities still held at the reporting date |
$25 |
Only the amount of unrealized gains and losses on equity investments still held at the reporting date (i.e., the $25) is required to be disclosed, although a reporting entity is not precluded from presenting how this number is calculated.
See FSP 20 for the required disclosures related to fair value.
9.7.3 Options that do not qualify for derivative accounting
As discussed in ASC 321-10-55-3, when a reporting entity enters into forward contracts or options that (1) are not derivatives subject to ASC 815 and (2) involve the acquisition of securities that will be accounted for under ASC 321, it should report those contracts consistent with the accounting, presentation, and disclosure requirements of ASC 321.
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