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Journal entry — Consolidation — FASB further deliberates the effect of rights held by other parties

Published on: Jan 29, 2014

At its meeting today, the FASB continued deliberating its project on the principal-versus-agent analysis related to the consolidation of variable interest entities (VIEs) and non-VIEs. Specifically, the FASB continued discussing how rights held by other parties — one of the three factors1 identified in its proposed ASU2 — should affect whether (1) an entity is a VIE and (2) an entity should consolidate a VIE. As explained in the board meeting handout, rights held by other parties include kick-out (removal) rights, liquidation rights, and participating rights.

The FASB reached the following tentative decisions:

  • In the determination of whether a limited partnership (or another similar legal entity3) is a VIE, the analysis of whether the limited partners, as a group, meet the criterion in ASC 810-10-15-14(b)(1) would depend on whether the rights held by the limited partners are exercisable by (1) a single limited partner or (2) a vote of a simple majority of the limited partners. This analysis would include rights held by all limited partners, including interests held by the general partner (or its related parties). In contrast, in the evaluation of whether an entity other than a limited partnership is a VIE, rights held by other parties would only be considered when such rights are unilaterally exercisable.
  • In the primary-beneficiary evaluation for a VIE, rights held by other parties would only be considered when they are unilaterally exercisable.

Editor’s Note: The FASB’s tentative decisions would result in an analysis for limited partnerships that is different from that for other types of entities (e.g., securitization entities) in the determination of whether an entity is a VIE. The Board indicated that its Basis for Conclusions would elaborate on why limited partnerships should be evaluated differently.


1    The other two factors in the proposal are (1) fees paid to a decision maker and (2) the decision maker’s exposure to variability of returns from its other interests. The FASB is expected to discuss these factors at future meetings.

2    FASB Proposed Accounting Standards Update, Principal Versus Agent Analysis.

3    For example, a limited liability corporation (LLC).

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