At its meeting yesterday, the FASB added to its agenda a project that would clarify when a not-for-profit (NFP) entity that is a general partner should consolidate a for-profit limited partnership (or similar entity) after the adoption of ASU 2015-02.¹

Under ASC 958-810-15-4(b)² before the amendments in ASU 2015-02, an NFP entity generally applies ASC 810-20 to determine whether it should consolidate a for-profit limited partnership. This guidance typically requires an NFP entity that is a general partner to consolidate a for-profit limited partnership unless the limited partners hold substantive kick-out or participating rights. However, because ASU 2015-02 eliminates ASC 810-20, an NFP entity that is a general partner will be left with no specific guidance on when it should consolidate for-profit limited partnerships.

At the meeting, the FASB staff presented two alternatives for potential consideration:³

• “Alternative A: Amend the consolidation guidance in Subtopic 958-810 to maintain current practice. Under this alternative, 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.”
• “Alternative B: Amend the consolidation guidance in Subtopic 958-810 to align the concept of controlling financial interest for an NFP that is a general partner of a for-profit limited partnership with the concept of a controlling financial interest in the variable interest model.”⁴

Board members directed the FASB staff to perform additional research on both alternatives.
Separately, the FASB decided not to add to its agenda projects on (1) the consolidation of variable interest entities by financial guaranty insurance entities that are subject to specialized accounting in ASC 944 or (2) simplifying the accounting related to attributing net income or loss and comprehensive income or loss to a parent company and noncontrolling interest.

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

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

3 Quoted text is from the meeting handout.

4 ASC 810-10-25-38A defines a controlling financial interest as an interest that gives the holder both (1) the “power to direct the activities of a [legal entity] that most significantly impact the [legal entity’s] economic performance” and (2) the “obligation to absorb losses of the [legal entity] that could potentially be significant to the [legal entity] or the right to receive benefits from the [legal entity] that could potentially be significant to the [legal entity].”