FASB Equity Method Targeted Improvements: 2026 Tentative Board Decisions
For every entity that holds investments in the 10%–50% range — joint ventures, strategic minority stakes, GP interests, real estate partnerships — the FASB’s FASB equity method targeted improvements just took a meaningful step toward final guidance. At the May 13, 2026 Board meeting, the FASB made tentative decisions that would reshape how preparers determine whether they have “significant influence” over an investee, and what to do in complex allocation structures. This guide breaks down the tentative decisions, what they mean for preparers, and what’s coming next.
At SW Accounting & Consulting Corp, we work with private and public companies determining equity method applicability across investment portfolios, real estate partnerships, and joint ventures. Below: the May 13 decisions, the practical implications, and the two new FASB projects that joined the technical agenda the same day.
What is the FASB equity method targeted improvements project? 📋
The project aims to clarify and modernize the equity method of accounting under ASC Topic 323 — particularly the “significant influence” determination and the mechanics of accounting in complex allocation structures.
Equity method (ASC 323) requires an investor to record its share of an investee’s earnings, losses, and other changes — applied when the investor has “significant influence” over the investee but not control. The legacy guidance has been criticized for inconsistent application across entity types and ambiguous tests for participation rights, governance structures, and partnership/LLC investments. The targeted improvements project addresses these gaps.
What does Issue A change about the significant influence test? 🎯
The Board decided on a single significant-influence threshold for applying the equity method regardless of entity type — and made three concrete improvements to the indicators in Subtopic 323-10.
| Issue A — Decision | Change |
|---|---|
| Single threshold | Apply significant-influence test the same way for all entity types (corporations, partnerships, LLCs) |
| 20% presumption | REMOVE the presumption that < 20% means no significant influence — judgment-based determination instead |
| Board indicator | Amend to include functionally-equivalent governing bodies (e.g., LLC managers, partnership management committees) |
| GP requirement | Noncontrolling general partner (or functional equivalent) IS deemed to have significant influence — mandatory equity method |
What the Board declined to add:
- Rebuttable presumption that an investor with substantive participating rights has significant influence — declined.
- Specific guidance on protective rights — declined.
- Extending in-substance common stock guidance from Subtopic 323-10 to partnership and similar entity investments — declined.
The 20% presumption has been a workhorse for decades. Removing it shifts the analysis to a pure facts-and-circumstances test — meaning an entity with 15% ownership and active management roles could be required to apply the equity method; an entity with 35% ownership but no meaningful governance influence might NOT. In our practice, this is going to drive significant judgment work for minority strategic investments and PE/VC limited partners — particularly those near the old 20% line.
What does Issue B address — complex allocation structures? 🧮
The Board decided to move generally-applicable equity method guidance currently buried in Subtopic 970-323 (Real Estate) into the main Subtopic 323-10, and to add illustrative examples on equity earnings allocation in complex structures — but declined to change the rules on “remote circumstances” terms.
Specific decisions:
- Migration of guidance: Move non-industry-specific guidance from 970-323 (Real Estate equity method) into 323-10 (general equity method) — makes the rules more visible to non-real-estate preparers.
- Remote circumstances terms: The Board did NOT pursue changes to paragraph 970-323-35-17 that would have required disregarding remote-contingency terms.
- Illustrative examples: Add Topic 323 examples showing one possible method to allocate equity in earnings in complex allocation structures (e.g., waterfalls, preferred return tiers).
What are the consequential amendments? 🔗
The Board decided NOT to change the population of investments eligible for proportionate consolidation or proportional amortization — but WILL make consequential amendments to Topic 810 (Consolidation) referencing the new complex-allocation guidance, and will remove certain real estate-specific paragraphs.
| Consequential Item | Decision |
|---|---|
| Proportionate consolidation eligibility | NO change to population |
| Proportional amortization method population | NO change from Issue A amendments |
| Topic 810 (Consolidation) — allocating income to NCI | Reference new Topic 323 complex-allocation guidance |
| Paragraphs 970-810-25-1 through 25-3 | REMOVE |
What is the transition path and early adoption? 📅
The Board decided on differentiated transition treatment depending on whether the affected investment is accounted for under the measurement alternative — modified prospective for measurement-alternative elections, modified retrospective otherwise.
For Issue A amendments (the significant-influence changes):
- Investments elected under the measurement alternative: If the investment is no longer within Topic 323’s scope after the amendments, apply modified prospective. Carrying amount of the equity method investment at adoption date becomes the new cost basis under the measurement alternative in Topic 321.
- Investments NOT under the measurement alternative: Apply modified retrospective. Apply the amendments as of the beginning of the period of adoption.
These are tentative decisions — the final ASU effective date and early-adoption mechanics will be determined when the Board issues an exposure draft or final standard.
What other projects did the Board add on May 13? 🆕
The same Board meeting added two new technical agenda projects scoped to investment companies under Topic 946.
- Investment companies — contractual sale restrictions on equity securities. Project will address fair value measurement of equity securities subject to contractual sale restrictions, scoped to investment companies within Topic 946.
- Private credit disclosures. New project on enhanced private credit disclosure requirements, also scoped to Topic 946 investment companies. Reflects growing institutional and regulatory focus on the private credit market.
The private credit disclosure project is significant given how rapidly private credit AUM has grown in the past 5 years. Watch this one — investment company sponsors (RICs, BDCs) and their auditors should expect detailed disclosure requirements that go beyond current fair value hierarchy and concentration metrics. Likely areas of focus: investment strategy, vintage analysis, credit quality, covenant structures, and unfunded commitment exposure.
What should preparers and audit teams do now? ✅
- Inventory equity-method-adjacent investments. Pull every investment in the 10%–50% ownership range, plus GP/LP positions and LLC/partnership investments. Flag those near the old 20% line.
- Run a pro forma significant-influence test. For each investment, evaluate under the proposed indicators: board/governing body presence, GP status, substantive participation rights. Identify which would change classification under the new rules.
- Model the measurement alternative impact. For investments that would move OUT of Topic 323, determine whether the entity will elect the measurement alternative under Topic 321 — and what the modified prospective basis would be.
- Coordinate with audit team early. Once the FASB issues an exposure draft, transition will require documentation of the significant-influence analysis for each investment. Start that documentation now.
- Investment companies: monitor the two new projects. RICs, BDCs, and other Topic 946 entities should watch the contractual sale restrictions and private credit disclosure projects through their exposure draft phases.
- Watch for the exposure draft. Tentative Board decisions can change. The exposure draft is the next milestone — typically followed by a comment period and then final standard issuance.
Frequently Asked Questions 🗂
For the official Board meeting minutes and tentative decisions, see the FASB Tentative Board Decisions page. The current equity method guidance is at ASC Topic 323 on FASB.org, and consolidation interactions are in Topic 810.
Need help inventorying equity-method investments, running pro-forma significant-influence tests, or preparing for the transition? SW Accounting & Consulting Corp’s technical accounting team supports preparers and auditors through ASU adoption — book a consultation.
