Question

What is ASU 2016-01 and what is its impact on the company’s reporting of its AFS securities? How might this impact the company’s earnings?

Answer 1

As we know that new update was made by FASB (Financial Accounting Standard Board) in January 2016. These accounting standards updates are known as ASU 2016-01.

As per direction of apex accounting body these updates will need to be implemented by the public business entities in 2018 whereas by the non-public business entities these updates need to be implemented in 2019.

Now let’s come to main point. what is its impact on the company’s reporting of its AFS securities?

As per new updates, equity securities will not be eligible for trading security and avavilable for sale classification. Hence it is clear that now equity securities will be reported in the financial statement at fair value and relevant changes will be reported in net income.

Thus it is clear that due to modification in accounting standards reporting criteria of AFS securities has been changed. Hence after adopting these updated accounting standards reporting of these securities will be affected.

As we have already discussed that equity securities will be recorded at fair value hence change due to change in fair value will be recorded in net income. So net inome also will be directly affected from such changes.

We know that in earlier time change in fair value for AFS was not recorded in net income but due to change in accounting standards now this type change will be reported in net income. Thus it is clear that net income also will be affected due to new accounting standards updates.