Case 10-7 Equities and Securities Gaap V. Ias

Equity Securities: GAAP versus IASB Standards

Case 10-7: Equity Securities: GAAP versus IASB Standards

The purpose of Statement of Financial Accounting Standards (SFAS) number 115now int the codification under FASB ASC Topic 320 is to address the accounting for and the reporting of equity securities. Equity securities, according to FASB ASC 320-20 (2009), are defined as:

Any security representing an ownership interest in an entity (for example, common, preferred, or other capital stock) or the right to acquire (for example, warrants, rights, and call options) or dispose of (for example, put options) an ownership interest in an entity at fixed or determinable prices.

A general overview of FASB ASC 320 is that equity securities that have a readily determinable value are to be reported at that fair value under this standard (FASB ASC 320). Since this standard is using fair value as a measurement it should make the convergence of FASB ASC 320 to International Financial Reporting Standards (IFRS) a little less complicated. With the push for the United States to adopt IFRS a major question is how does FASB ASC 320 compare to the International Accounting Standard (IAS) number 39?

Comparison of SFAS 115 (FASB ASC Topic 320) to IAS No. 39

FASB ASC 320 and IAS 39 are basically the same. They both provide guidance on the accounting of various types of equity securities which each standard classifies into four categories and all the securities are initially accounted for at their fair value. (Duangploy & Pence, 2010). When revaluations for fair value are done each period the holding gain or loss is accounted for in the income statement under IAS 39 and in other comprehensive income under FASB ASC 320.

An area of difference is when revaluation of securities produces a loss. According to Duangploy and Pence (2010) “when fair value falls below cost it is considered to be impaired or a permanent loss.” Such impairment is not recognized under FASB ASC...