Last week, the FASB continued to deliberate phase 2 of its project on the definition of a business, including clarifying the scope of ASC 610-20¹ and accounting for partial sales of nonfinancial assets. Specifically, the Board made tentative decisions about (1) undivided interests, (2) the unit of account and the entity that “holds” the nonfinancial asset, and (3) transition.

Undivided Interests

The Board tentatively decided against including explicit guidance in ASC 610-20 that would address the sale of undivided interests, because the current guidance in ASC 970-323 indicates that a sale to a real estate venture (including undivided interests) would be accounted for similarly to the accounting for a partial sale under ASC 610-20. In addition, the Board directed its staff to research whether the Board should further consider proportionate consolidation (including whether to eliminate proportionate consolidation) and, if so, whether it should do so in phase 3 of its project on the definition of a business or in a separate project.

Unit of Account and the Entity That “Holds” the Nonfinancial Asset

The Board tentatively decided that the buyer in certain partial sales of nonfinancial assets should be defined as the former subsidiary (rather than a shareholder). In addition, rather than using the term “holds,” the Board tentatively decided to retain the control principle in ASC 606 under which an entity would need to assess when control of an asset is transferred from the customer’s perspective (i.e., when the customer obtains control of an asset). For example, regarding the transfer of a wholly owned subsidiary:

• If an entity’s promise is to transfer 100 percent of the subsidiary to a single party (or multiple parties), control is transferred when the single counterparty obtains control (or multiple counterparties collectively obtain control) of the asset.
• If an entity’s promise is to transfer less than 100 percent of the subsidiary (in which case, the entity retains a noncontrolling interest in the former subsidiary), control is transferred if (or when) the former subsidiary controls the asset.

Transition

The Board tentatively decided to permit an entity to use a different approach to adopt ASC 610-20 than it uses to adopt ASC 606 (e.g., an entity may use the modified retrospective approach to adopt ASC 610-20 and the full retrospective approach to adopt ASC 606). However, the Board also tentatively decided that if a different method is used, an entity would need to provide the related transition-method disclosures required by ASC 606 for the method used to adopt ASC 610-20.

Next Steps

The Board instructed its staff to draft a proposed ASU that addresses the decisions reached at the meeting.

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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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