Consolidation — FASB nears completion of updated guidance
At its meeting yesterday, the FASB discussed the remaining issues related to its consolidation project. The staff described costs and benefits associated with the proposed changes to the consolidation requirements. As outlined in the Board handout for the meeting, the significant proposed changes are as follows:
(a) Additional condition for limited partnerships and similar legal entities to qualify as voting interest entities
(b) Impact on fees paid to decision makers or service providers for evaluation as variable interests
(c) Impact on fees paid to decision makers or service providers for the primary beneficiary determination
(d) Evaluation of related party interests for the primary beneficiary determination
(e) Scope exception for certain money market funds from Topic 810
(f) Alignment of the definition of participating rights.
The FASB discussed whether the definition of participating rights for voting interest entities (VOEs) should be aligned with that for variable interest entities (VIEs). Participating rights for VOEs are rights held by noncontrolling shareholders (or limited partners) that allow the holders to “effectively participate in decisions that occur as part of the ordinary course of the investee’s business and are significant factors in directing and carrying out the activities of the business.” Participating rights for VIEs are those that give a VIE the “ability to block the actions through which a reporting entity exercises the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance.” The FASB tentatively decided not to align the definition of participating rights for VOEs with the definition of participating rights for VIEs.
The FASB also tentatively decided not to establish separate recognition, measurement, and disclosure consolidation requirements for nonpublic business entities as part of this project.
In addition, the FASB tentatively decided to require modified retrospective application (including a practicability exception) with an option for full retrospective application. The Board further tentatively decided that the guidance would be effective for public business entities for annual periods and interim periods within those annual periods beginning after December 15, 2015. The guidance would be effective for other entities for annual periods beginning after December 15, 2016, and interim periods beginning after December 15, 2017. The Board tentatively decided to allow early adoption for all entities, but would require that the guidance be applied as of the beginning of the annual period containing the adoption date.
Finally, the FASB tentatively decided not to issue a revised exposure draft. Instead, the Board directed the staff to prepare a draft of an Accounting Standards Update to distribute to selected constituents (including, financial statement users, preparers, and auditors) to obtain feedback on the proposed amendments. On the basis of feedback received, the FASB will determine how to proceed at a future meeting.
