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Consolidation

Date recorded:

The purpose of this session was to (1) discuss the convergence approach, if any, to be taken by both Boards in finalising their projects on consolidation and (2) identify consolidation issues for deliberation by both Boards at future joint meetings.

Convergence Project Plan

The staff recommended that the Boards work together and ultimately issue a converged standard on consolidations.

The Boards deliberated various options for proceeding to finalise their respective projects. The Boards agreed with the staff on working together to issue a converged standard on consolidation. Going forward, the Boards would jointly deliberate the various consolidation issues identified before the IASB finalises its new consolidation standard. The FASB would then expose the final IASB standard, redeliberate the guidance based on public comments received on the exposure draft, and then proceed to issue a final FASB standard. The IASB final standard and FASB exposure draft should be completed by late March or early April 2010, with both Boards issuing their final standards by the end of 2010.

The IASB noted that its current model provides the same criteria for voting interest entities as it does for structured entities. The FASB indicated that in proceeding with the project, the same criteria should apply to both voting interest entities and variable interest entities.

Issues for Redeliberation

The staff pointed out that while the basic control models were converged between FASB Statement 167 and IASB ED 10, there remained differences between the IASB's and FASB's guidance on kick-out rights that should be deliberated at future joint meetings. There are also a number of issues that both Boards had yet to consider or deliberate which also would require discussion over the next few months.

The Boards held preliminary discussions on kick-out rights regarding when they can be ignored, when they can be considered substantive, and how the kick-out right provisions should be applied to various scenarios. In particular, the IASB asked many questions about why Statement 167 requires kick-out rights be ignored unless they are held by a single enterprise. The FASB indicated that it is an anti-abuse provision because they believe kick-out rights are generally non-substantive. The Boards asked the staff to finalise the list of issues that should be deliberated and prepare to present these issues with examples at the next joint meeting in December 2009.