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Journal entry — FASB makes tentative decisions clarifying when not-for-profit entities should consolidate a limited partnership (or similar entity)

Published on: Mar 31, 2016

At its meeting yesterday, the FASB discussed its project to clarify when a not-for-profit entity (NFP) that is a general partner should consolidate a for-profit limited partnership or similar entity. The project was added to the Board’s agenda at its December 17, 2015, meeting as a result of implementation questions from stakeholders regarding the application of the amendments to the consolidation guidance in ASC 810-101 arising from ASU 2015-02,2 which eliminated ASC 810-20.3 Under ASC 958-810-15-4(b)4 before ASU 2015-02’s amendments, an NFP that is a general partner of a for-profit limited partnership would, in accordance with ASC 810-20, be presumed to control the limited partnership unless the limited partners are able to exercise substantive kick-out or participating rights.

At the meeting, the Board made the following tentative decisions:

  • To retain current accounting (Issue 1) — The Board will amend the consolidation guidance in ASC 958-810 to retain current accounting, under which an NFP that is a general partner would be presumed to control a limited partnership unless the limited partners are able to exercise substantive kick-out or participating rights.
  • To provide transition guidance (Issue 1(a)) — The Board will provide transition guidance for NFPs that have early adopted the provisions of ASU 2015-02 to use either a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption or apply the amendments retrospectively.
  • To retain special-purpose-entity lessor guidance (Issue 2) — As a result of its decision on Issue 1 to retain current accounting, the Board considered but ultimately rejected superseding or amending the current guidance in ASC 958-810-25-8 through 25-10 and ASC 958-810-55-7 through 55-16 for NFPs that engage in leasing transactions with special-purpose-entity lessors.

Next Steps

The Board directed its staff to draft a proposed Accounting Standards Update with a 60-day comment period to reflect the tentative decisions made at the meeting.

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1 FASB Accounting Standards Codification Subtopic 810-10, Consolidation — Overall.

2 FASB Accounting Standards Update No. 2015-02, Amendments to the Consolidation Analysis.

3 FASB Accounting Standards Codification Subtopic 810-20, Consolidation — Control of Partnerships and Similar Entities.

4 FASB Accounting Standards Codification Subtopic 958-810, Not-for-Profit Entities — Consolidation.

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