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Consolidations, including special purpose entities

Date recorded:

Education session on Consolidation of Variable Interest Entities - an introduction to FASB FIN 46(R)

Ed Trott, A Member of the US Financial Accounting Standards Board, led the IASB in a discussion of FASB Interpretation FIN 46(R) Consolidation of Variable Interest Entities. He explained what the FASB aimed to achieve through the Interpretation and shared some of the experience that the FASB has gained. The session concentrated on general principles and on six examples of applying those principles to a variety of common situations.

The session highlighted that within both the FASB and IASB standards there is a tension between the various aspects of the boards' definitions of control. For example, some standards focus on the 'power' aspect of control while others focus on the 'so as to benefit' criterion, often with contradictory results.

The session also noted that in FIN 46(R), the FASB used the word 'expected' in the way the term in used in FASB Concepts Statement 7, meaning a 'probability-weighted outcome', rather than the commonly-used meaning of 'most likely.' The examples used during the session demonstrated that the probability-weighted outcome was critical in assessing which entity had a majority of the variable interests in many situations.

No decisions were made.