Inflation has had a minimal impact on vessel operating expenses and general and administrative expenses. Our management does not consider inflation to be a
significant risk to expenses in the current and foreseeable economic environment.
Recent Accounting Pronouncements
In January 2017, FASB issued Accounting Standard
Update (ASU) 2017-03 Accounting Changes and Error Corrections (Topic 250) and Investments-Equity Method and Joint Ventures (Topic 323). The ASU amends the
Codification for SEC staff announcements made at recent Emerging Issues Task Force (EITF) meetings. The SEC guidance that specifically relates to our consolidated financial statement was from the September 2016 meeting, where the SEC staff expressed
their expectations about the extent of disclosures registrants should make about the effects of the new FASB guidance as well as any amendments issued prior to adoption, on revenue
(ASU 2014-09), leases (ASU 2016-02) and credit losses on financial instruments (ASU 2016-13) in
accordance with SAB Topic 11.M. Registrants are required to disclose the effect that recently issued accounting standards will have on their financial statements when adopted in a future period. In cases where a registrant cannot reasonably estimate
the impact of the adoption, then additional qualitative disclosures should be considered. The ASU incorporates these SEC staff views into ASC 250 and adds references to that guidance in the transition paragraphs of each of the three new standards.
The adoption of this ASU did not have a material effect on the Companys consolidated financial statements.
In June 2016, FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard requires entities to measure all expected credit losses of
financial assets held at a reporting date based on historical experience, current conditions, and reasonable and supportable forecasts in order to record credit losses in a more timely matter.
ASU 2016-13 also amends the accounting for credit losses on available-for-sale debt securities and purchased
financial assets with credit deterioration. The standard is effective for interim and annual reporting periods beginning after December 15, 2019, although early adoption is permitted for interim and annual periods beginning after
December 15, 2018. The Company is currently assessing the impact that adopting this new accounting guidance will have on its consolidated financial statements.
Critical Accounting Policies
interim consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires Navios Acquisition to make estimates in the application of our accounting policies based on the
best assumptions, judgments and opinions of management. Actual results may differ from these estimates under different assumptions or conditions.
Critical accounting policies are those that reflect significant judgments or uncertainties, and potentially result in materially different results under
different assumptions and conditions. Other than as described below, all significant accounting policies are as described in Note 2 to the consolidated financial statements included in the Companys Annual Report on Form 20-F for the year ended December 31, 2017 filed with the SEC on April 5, 2018.
Investments in Equity
Navios Acquisition evaluates its investment in Navios Midstream, Navios Europe I and Navios Europe II for OTTI on a quarterly basis.
Consideration is given to (i) the length of time and the extent to which the fair value has been less than the carrying value, (ii) the financial condition and near-term prospects of Navios Midstream, Navios Europe I and Navios Europe II,
and (iii) the intent and ability of the Company to retain its investment in Navios Midstream, Navios Europe I and Navios Europe II for a period of time sufficient to allow for any anticipated recovery in fair value.
Navios Acquisition considers whether the fair values of its equity method investments have declined below their carrying values whenever adverse events or
changes in circumstances indicate that the carrying value may not be recoverable. If we consider any such decline to be other-than-temporary (based on various factors, including historical financial results, economic and industry events resulting in
changes in the affiliates trading performance and the overall health of the affiliates industry), then we would write down the carrying amount of the investment to its estimated fair value.
As of September 30, 2018, the carrying amount of the investment in Navios Midstream was $106.6 million or $8.46 per unit, which represented our
total ownership interest in the Partnership of 59.0%. The estimated market value of this investment was determined with reference to the quoted price of the common units of $2.97 per unit as of September 30, 2018, which ranged from a high of
$10.32 per unit to a low of $2.74 per unit during the nine months ended September 30, 2018. Management considers the volatility and decline in the market value of its investment in Navios Midstream to be temporary and no adjustment to the
carrying value of our investment was deemed necessary as of September 30, 2018 as we have both the ability and intent to hold (to the extent that the merger described in Navios Midstream Merger Agreement under Recent
Developments, and Note 17 Subsequent Events, is not consummated) our investment in Navios Midstream.