Summary of FASB-IASB decisions on noncontrolling interests

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23 Aug 2004

The IASB and the US FASB are developing common exposure drafts of their proposed standards on accounting for business combinations - phase II.

The EDs will be similar in both wording and style (including the IASB style of highlighting principles in bold type). The expected issuance date of the EDs is now the fourth quarter of 2004. The FASB has posted on its website two summaries of tentative decisions reached. Our news story of 10 August 2004 has a link to a 156-page staff summary of tentative decisions reached relating to purchase method procedures. The FASB has just posted a second decision summary, this one (67 pages) relating to noncontrolling (minority) interests. Because there is no comparable summary on the IASB's website and the Boards are working toward issuing nearly identical standards, the FASB summary should be of interest to those who are following the IASB project as well. Click to Download the FASB Summary (PDF 563k). Among the key conclusions re noncontrolling interests:

  • The equity interests of noncontrolling shareholders in subsidiaries would be presented in equity (IAS 27 already requires this).
  • Net income or loss and each component of other comprehensive income would be attributed to the controlling and noncontrolling interests based on relative ownership interests unless the controlling and noncontrolling interests have entered into an arrangement that requires a different attribution.
  • Losses attributable to the noncontrolling interest in excess of the noncontrolling interest in the equity capital of the subsidiary would be attributed to the noncontrolling interest rather than to the controlling interest.
  • Changes in ownership interests in the subsidiary after control is obtained that do not result in a loss of control of the subsidiary would be accounted for as capital transactions. The difference between the amount by which the noncontrolling interest is adjusted and the consideration paid or received, if any, would be recognised as additional paid-in capital (no gain or loss). Thus, the acquisition of some or all of the noncontrolling interests in a subsidiary would not be accounted for by the purchase method as in current practice.
  • At the time the parent obtains control of the subsidiary, the assets (including goodwill) and liabilities of the subsidiary would be recorded at their fair values.
  • On the date control of a subsidiary is lost, any retained noncontrolling investment in a former subsidiary would be remeasured to its fair value and a gain or loss, if any, would be recognized in consolidated income.

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