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FASB updates its consolidations requirements

  • FASB document Image

Feb 18, 2015

The FASB has issued Accounting Standards Update (ASU) No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis,” which amends the consolidation requirements in ASC 810.

While the Board’s focus during deliberations was largely on the investment management industry, the ASU could have a significant impact on the consolidation conclusions of reporting entities in other industries. For example:

  • Limited partnerships will be variable interest entities (VIEs), unless the limited partners (LPs) have either substantive kick-out or participating rights. Although more partnerships will be VIEs, it is less likely that a general partner (GP) will consolidate a limited partnership.
  • The ASU amends the effect that fees paid to a decision maker or service provider have on the consolidation analysis. Specifically, it is less likely that the fees themselves would be considered a variable interest, that an entity would be a VIE, or that consolidation would result.
  • The ASU significantly amends how variable interests held by a reporting entity’s related parties or de facto agents affect its consolidation conclusion. Specifically, the ASU will result in less frequent performance of the related-party tiebreaker (and mandatory consolidation by one of the related parties) than under current U.S. GAAP.
  • For entities other than limited partnerships, the ASU clarifies how to determine whether the equity holders (as a group) have power over the entity (this will likely result in a change to current practice). The clarification could affect whether the entity is a VIE.
  • The deferral of ASU 2009-17 for investments in certain investment funds has been eliminated. Therefore, investment managers, GPs, and investors in these investment funds will need to perform a drastically different consolidation evaluation.

Although the ASU is expected to result in the deconsolidation of many entities, reporting entities will need to reevaluate all their previous consolidation conclusions.

For more information, see Deloitte's February 19, 2015, Heads Up, as well as the press release, ASU, FASB in Focus newsletter, and the cost and benefits report, on the FASB’s Web site.

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