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Consolidation: Principal versus agent analysis

The objective of this project is to (1) provide criteria for a reporting entity to evaluate whether a decision maker is using its power as a principle or agent, (2) eliminate inconsistencies in evaluating kick-out and participating rights, and (3) amend the requirements for evaluating whether a general partner controls a limited partnership.

 

Meeting minutes

FASB Board discussions regarding this project are found in the following meeting minutes:

  • January 28, 2015 — The Board received an update from its staff on the status of the consolidation project.
  • December 10, 2014 —The Board discussed certain significant items related to its consolidation project that had been raised during the external review process.
  • November 12, 2014 — The Board received an update from its staff about the status of its consolidation project.
  • July 16, 2014 — The Board directed the staff to prepare an Accounting Standards Update (ASU), which will be reviewed by stakeholders.
  • May 6, 2014 — The Board summarized the results of its outreach conducted to assess when the related-party tiebreaker test in ASC 810, Consolidation, should be performed.
  • April 16, 2014 — The Board discussed (1) its proposed consolidation scope exception for money market funds and (2) the circumstances in which a fee arrangement represents a variable interest.
  • March 12, 2014 — The Board discussed how interests held in an entity by the related parties of a decision maker should affect whether the decision maker must consolidate the entity.
  • February 19, 2014 — The Board tentatively decided to exclude from the primary benefit determination fees that are at-market and commensurate with the services provided. In addition, the Board tentatively decided that the evaluation of a decision maker’s other interests should focus on whether the decision maker has the “obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.” The Board also tentatively decided that in the evaluation of a decision maker’s other interests, the existing threshold for evaluating a reporting entity’s economic exposure under ASC 810-10-25-38A(b) should be retained.
  • January 29, 2014 — The Board discussed the principal-versus-agent analysis related to the consolidation of variable interest entities (VIEs) and non-VIEs.
  • January 8, 2014 — The Board discussed how to further integrate rights held by other parties, one of the principal versus agent factors included in the proposed ASU, Consolidation (Topic 810): Principal Versus Agent Analysis, within the existing guidance in ASC 810 for voting interest entities and variable interest entities.
  • December 11, 2013 — The Board decided that the factors included in the proposed ASU, Consolidation (Topic 810): Principal Versus Agent Analysis, for determining whether a decision maker is a principal or an agent should be integrated into the existing guidance in Topic 810 for variable interest entities and voting interest entities.
  • October 24, 2013 — The Board discussed money market funds from the scope of ASC 810.
  • September 11, 2013 — The Board discussed a plan for redeliberation of its proposed ASU and estimated a final ASU will be issued in the second half of 2014.
  • November 6, 2012 — The Board decided to align the principal versus agent analysis for VIEs and partnerships by requiring that a decision maker that is determined to be the principal of a VIE to be automatically considered to be the primary beneficiary of the VIE.
  • August 29, 2012 — The Board discussed the alignment of the treatment of the evaluation of participating rights for assessing consolidation for voting interest entities, variable interest entities, and other similar entities (including limited partnerships).
  • April 25, 2012 — The Board discussed feedback received on its proposed ASU, Consolidation (Topic 810): Principal versus Agent Analysis.
  • December 8, 2011 — Comment deadline was extended on the proposed ASU, Consolidation (Topic 810): Principal versus Agent Analysis.
  • March 9, 2011 — The Board discussed its tentative decision to modify the consolidation guidance for partnerships and the transition requirements for the proposed guidance for distinguishing an agent from a principal.
  • January 12, 2011— The Board discussed four factors that would be evaluated to determine whether a decision maker is an agent or a principal. In addition, the Board decided not to:
    • Develop a single, control-based consolidation model that would apply to both voting interest entities and variable interest entities.
    • Amend the guidance related to consolidating voting interest entities to incorporate a concept of “effective control.”
    • Incorporate potential voting rights into a reporting entity’s analysis of whether it controls another voting interest entity.
  • June 1, 2010 — The boards discussed the disclosure requirements for consolidated subsidiaries and unconsolidated structured entities.
  • May 19, 2010 — The boards discussed the application of principal versus agent analysis to regulated funds.
  • May 4, 2010 — The boards discussed the overall disclosure principles, disclosures for consolidated subsidiaries, disclosures for unconsolidated structured entities, and disclosures related to investment companies.
  • March 24, 2010 — The boards discussed the control model, reporting entity's disclosures for subsidiaries, and reputational risk in the context of requiring disclosures for implicit obligations of support that a reporting entity may have with another entity.
  • March 23, 2010 — The boards discussed the control model being developed for the purposes of determining when one entity should consolidate another.
  • March 16, 2010 — The boards discussed control of entities controlled through voting rights.
  • January 19, 2010 — The boards discussed (1) control through voting rights, (2) options and convertible instruments, and (3) agency relationships.
  • December 17, 2009 — The boards discussed consolidation of voting interest entities under the control model.
  • October 26, 2009 — The boards identified when entities should be consolidated.

 

Current status

On February 18, 2015, the FASB issued Accounting Standards Update No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which amends the consolidation requirements in ASC 810.

 

Project milestones

DateDevelopmentsComments
November 3, 2011 Proposed ASU, Consolidation (Topic 810): Principal Versus Agent Analysis. Comment deadline February 15, 2012.
February 18, 2015 FASB Accounting Standards Update No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. Effective December 15, 2015 for public entities.

Correction list for hyphenation

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