Consolidation — FASB makes tentative decisions about fees and economic interests in VIE analysis

Published on: 20 Feb 2014

At its meeting yesterday, the FASB continued deliberating its proposed requirements related to the consolidation of variable interest entities (VIEs). The Board tentatively decided that if the fees paid to a VIE’s decision maker are “at market” and are commensurate with the services provided, the decision maker should not take the fees into account when evaluating its economic exposure to the VIE in its consolidation analysis, regardless of whether it has other economic interests in the VIE. The Board also tentatively decided that fees paid to a decision maker that are either subject to lock-up provisions or settled in the form of variable interests of the VIE (i.e., not cash) should also be excluded from the evaluation, provided that the fees are at market and are commensurate with the services that the decision maker provides.

In addition, the Board 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)1 should be retained. That is, the evaluation will 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 will resume deliberations in March, when it will consider how interests held by related parties of the decision maker should affect the consolidation analysis.


1    For titles of FASB Accounting Standards Codification (ASC) references, see Deloitte’s “Titles of Topics and Subtopics in the FASB Accounting Standards Codification.”

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