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US GAAP | IFRS |
To determine the appropriate accounting treatment for a financial interest not consolidated or accounted for under the equity method, a reporting entity should first determine whether the interest meets the definition of a security, which, to a large extent, is a legal determination.
If the entity determines that an interest meets the definition of a security, it should then determine whether that security is an equity or debt security based on the definitions in ASC 321 and ASC 320 and follow the measurement models described in those sections unless industry-specific guidance applies.
If the entity determines that the interest does not meet the definition of an equity security, it may still have to follow the guidance in ASC 321 if the interest is in the form of an investment in a partnership, unincorporated joint venture, or LLC (See SD 7.7).
If the entity determines that the interest is not a security, and does not represent a partnership or similar interest, other guidance would apply. For example, for trade account receivables, loans, and other similar assets, ASC 310 would generally be applicable, unless the entity follows industry-specific guidance (See SD 7.3).
| For financial assets that are not consolidated or accounted for using the equity method, an entity first considers whether the financial asset is an investment in an equity instrument by evaluating the classification of the instrument from the perspective of the issuer under IAS 32 (see SD 10 for a discussion of the issuer’s classification model). If the financial asset is an investment in an equity instrument, the entity should follow the guidance for equity instruments. If the financial asset is not an investment in an equity instrument, the entity should follow the guidance for debt investments.
There is one exception to this rule, which applies to instruments that are classified as equity under the “puttable instruments” provisions of IAS 32, such as investments in mutual funds (see SD 10.8). An entity should follow the guidance for debt investments for these instruments (even when they are presented as equity from the issuer’s perspective).
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