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Consolidation — FASB continues discussion of related-party interests

Published on: 08 May 2014

At its meeting on Tuesday, the FASB continued discussing whether and, if so, when the related-party tiebreaker test1 should be performed if a decision maker concludes that it is not the primary beneficiary of a variable interest entity (VIE) on the basis of its direct and indirect interests in the VIE. The FASB tentatively decided that in such a situation, the related-party tiebreaker test should not be performed by any party in the decision maker’s related-party group unless the decision maker and its related parties are under common control and, together, these entities possess the characteristics of a primary beneficiary, in which case either the decision maker or a related party under common control would consolidate the VIE.

The FASB also tentatively decided that if neither the decision maker nor a related party under common control is required to consolidate a VIE, but the related-party group possesses the characteristics of a primary beneficiary and substantially all the activities of the VIE are conducted on behalf of a single entity in the related-party group, that entity would be the primary beneficiary of the VIE.

The Board noted that it will continue its consolidation deliberations in June, when it will discuss (1) the cost and complexity of implementing the consolidation standard, (2) the effect of the Board’s tentative decisions on the current examples in ASC 810,2 (3) the consequences for private companies of the new consolidation guidance, (4) reexposing the standard, and (5) the transition requirements and the standard’s effective date.


1 The related-party tiebreaker test refers to the guidance in ASC 810-10-25-44, under which a reporting entity is required in certain situations to determine which party in a related-party group (1) is “most closely associated” with the VIE that is being evaluated for consolidation and (2) is therefore the VIE’s primary beneficiary (and thus required to consolidate the VIE).

2 FASB Accounting Standards Codification Topic 810, Consolidation.

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