Last week, FASB announced the issuance of a proposed Accounting Standards Update (ASU) to make some tweaks to the accounting for equity method investments. This PwC viewpoint explains the proposed changes as follows:

A single significant influence threshold: Under existing guidance, the assessment can differ for investments in corporations compared with partnerships and similar entities [. . .]  The proposal would eliminate those differing scope thresholds and use “significant influence” as the single principle for determining whether an investment is subject to the equity method. As a result, some investments in partnerships and similar entities that are currently accounted for under the equity method may no longer qualify for the equity method if the investor does not have significant influence. The FASB also proposed several targeted changes to the significant influence guidance in ASC 323 to:

– Remove the presumption that an investor does not have significant influence when it owns less than 20% of an investee’s voting stock

– Expand the existing board representation indicator to include representation on a functionally equivalent governing body

– Specify that a noncontrolling general partner or its functional equivalent (such as a managing member in a limited liability company) has significant influence

An investor would continue to presume significant influence when the 20% ownership threshold is met; however, an ownership interest below 20% would no longer create a presumption that significant influence does not exist. Rather, the other relevant factors in the existing guidance would need to be considered.

Complex allocation structures: The proposal also aims to clarify how an equity method investor determines its share of an investee’s earnings when the investee has a complex allocation structure, which is often done using an approach referred to as “hypothetical liquidation at book value.” The proposed ASU would move guidance on this topic in ASC 970-323, Real Estate—General—Investments—Equity Method and Joint Ventures, which is not specific to the real estate industry or to a particular transaction into ASC 323 so it is more easily accessible for financial statement preparers.

Other proposed amendments: The proposal would also make consequential amendments to ASC 810, Consolidation, related to (1) allocating income to noncontrolling interests that involve complex allocation structures and (2) the application of proportionate consolidation in certain industries.

Comments are due January 11, 2027. The proposed ASU is available at  www.fasb.org with instructions on how to submit comments.

– Meredith Ervine 

Earlier this month, State Street announced the results of its 2026 Digital Assets Study, which surveyed 300 institutional investors between July 20 and August 19 to understand institutional adoption, investment priorities and operational readiness for digital assets. It found that “institutional investors are becoming increasingly confident in the long-term future of digital assets.” Here are some stats and quotes from the summary that stood out to me:

– 51% expect digital assets to become mainstream within five years, if they have not already, up from 42% in 2025 and 11% in 2024.

– Just 3% believe digital assets will never become mainstream.

– More than one-third (35%) of respondents already manage or distribute digital assets, while another 28% have the provider relationships and infrastructure in place to do so if client demand arises.

– Cost reduction and efficiency were identified as the largest expected benefit of digital assets by 53% of respondents. Faster settlement was the most frequently cited advantage (67%), followed by new client acquisition (58%) and increased liquidity (53%).

– Nearly one in five respondents believe a fully on-chain market structure will never replace today’s hybrid model of traditional and digital infrastructure.

– Meredith Ervine 

The DOJ has been focused on encouraging corporate self-reporting and holding the real “bad guys” accountable in the last few years. Over on Radical Compliance, Matt Kelly recently wrote about a technology company charged with violations of U.S. sanctions laws through its Russian subsidiary, where the timing of the self-reporting didn’t do the company any favors.

The sanctions violations finally came to the attention of Extreme’s legal and compliance team in April 2022 thanks to a whistleblower complaint. (Yay for internal reporting!) The company then conducted what the Justice Department readily admits was a “good-faith investigation,” complete with outside counsel and a presentation to Extreme’s board in summer 2022 [. . .] The issue stayed dormant until October 2022, when a news media outlet contacted Extreme to say it was working on a story about the Moscow office selling goods to Russian military contractors.

The news reporters “cited new facts previously unknown to the company’s counsel regarding the possibility of willful misconduct by the company’s Russia-based employees,” the Justice Department said. That prompted Extreme to reopen its original investigation and submit a self-disclosure to the Justice Department just days before the news report was published.

Now we get to the key point. Since Extreme made its self-disclosure in anticipation of the media disclosing the matter anyway, that decision did not qualify as a voluntary self-disclosure under the Justice Department’s Corporate Enforcement Policy.

This is all known as a “near miss” under the latest incarnation of the Corporate Enforcement Policy, unveiled last March. A company’s self-disclosure doesn’t qualify as voluntary if that company makes its disclosure under “imminent threat” of some other party disclosing the same violation — like, say, a media outlet about to blast news of your sanctions violations across the interwebs.

To be clear, Extreme Networks did everything else right, such as cooperating with the Justice Department’s investigation and improving its sanctions compliance program. But without the voluntary self-disclosure prong, the best Extreme (or any other company) could hope for is a non-prosecution agreement rather than a declination. Which is exactly what Extreme received.

To quote directly from the Justice Department’s press release on the case:

While Extreme Networks’ disclosure to the National Security Division was not timely because it occurred under imminent threat of disclosure by a news publication, Extreme Networks nonetheless fully cooperated with the department’s investigation and timely and appropriately remediated the misconduct. As a result, its disclosure qualified as a near-miss Voluntary Self-Disclosure under the policy.

Matt says, “Now the compliance community knows what a near-miss situation looks like.”

– Meredith Ervine