Two years after adoption of the new guidance, Buffett continued his criticism of ASU 2016-01. In his annual letter to Berkshire Hathaway shareholders in early 2018, Warren Buffett criticized the new accounting treatment under ASU 2016-01 and warned of increased volatility in earnings: “I must … tell you of a new accounting rule … that in future quarters will severely distort Berkshire’s net income figures and very often mislead commentators and investors” ( ). In the insurance industry, for example, companies with large portfolios of equity securities classified as available for sale securities showed dramatic increases in both earnings volatility and earnings surprises for 20, the first two years of implementation.Īccounting Standards Update 2016-01 (ASU 2016-01), Recognition and Measurement of Financial Assets and Financial Liabilities, became effective for financial statements beginning after December 15, 2017. For companies that have large portfolios of equity securities that were classified as available for sale, this change may significantly affect earnings. Under ASU 2016-01, the change in unrealized gains and losses on all equity securities is recognized in income. Under prior guidance, the change in unrealized gains and losses for available for sale equity securities was recognized in equity as a part of other comprehensive income. One of its key provisions was a change in the treatment of equity securities classified as available for sale. Accounting Standards Update (ASU) 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, became effective for financial statements beginning after December 15, 2017.
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