The objective of the FASB Consolidation project is to: (1) provide criteria for a reporting entity to evaluate whether a decision maker is using its power as a principle or agent, (2) eliminate inconsistencies in evaluating kick-out and participating rights, and (3) amend the requirements for evaluating whether a general partner controls a limited partnership.
Key developments in the FASB Consolidation project
- In late 2011, the FASB proposed changes to the accounting guidance used to determine whether one entity should consolidate another. The proposal focused primarily on determining whether a party with decision-making power is acting as a principal or an agent for a "variable interest entity" or a partnership that is a "voting interest entity." A principal in this context would consolidate whereas an agent would not. The proposal also would end the deferral of existing guidance on consolidations for certain investment entities.
- Whether the party with decision-making power is acting as a principal or an agent would be determined based on the overall relationship between the decision maker, the entity being managed, and any other interest holders, considering (i) the rights, including kick-out rights, held by others, (ii) how the decision-maker is compensated, with emphasis on whether such compensation is market-based, and (iii) other interests held by the decision maker in the entity.
- For kick-out rights (removal and liquidation), the proposal would align the related guidance for both voting and variable interest entities. Currently, under the variable interest entity model, kick-out rights are only considered when held by a single party, but under the voting interest entity model simple majority kick-out rights are relevant. If kick-out rights are held by more than one party, judgment will be required to determine what impact that right has on the principal versus agent conclusion. Generally the more dispersed the parties that hold the rights, the less indicative those rights would be of an agent in the principal versus agent analysis.
- After the comment period ended early in 2012, the FASB reconsidered some key aspects of the proposal. Perhaps most notable is its decision to align the guidance for participating rights across all consolidation models. Under the current approach for voting interest entities, a noncontrolling shareholder's ability to veto certain decisions could prevent a majority shareholder from consolidating the entity. Under the proposal, a noncontrolling shareholder would have to be able to veto all of the activities that most significantly impact the entity's economic performance to preclude the majority shareholder from being deemed to have control. Another more recent decision would preclude any party, such as an asset manager, from consolidating money market funds that are registered with the SEC and similar unregistered funds.
- Redeliberations were put on hold in 2012 as the FASB turned its attention to other priority projects. However, redeliberations resumed in late 2013 and are expected to continue in 2014. There is no planned effective date at this time and it is unclear whether early adoption will be permitted. A final standard is expected in the second half of 2014.
Why the FASB Consolidation project is important
- The proposal would likely have a significant impact on some asset managers and financial institutions that issue structured products or are general partners in a partnership. For example, managers of collateralized financing entities that currently consolidate solely due to subordinated fee arrangements may be considered agents under the proposal. Also, limited partnership structures − which are common in certain other industries− that are currently consolidated by the general partner because other investors as a group do not have the right to remove the general partner or liquidate the partnership by a simple majority vote may be impacted.
- Aligning the definition of participating rights across all consolidation models could change consolidation conclusions for typical operating entities controlled by voting rights. In particular, consolidation conclusions could change where the existence of participating rights held by the noncontrolling shareholder currently precludes consolidation by the majority shareholder.
Consolidation - a new standard is imminent
8/5/14 | Assurance services
The FASB expects to issue a final standard amending the current consolidation guidance in the coming months. The new consolidation standard will make targeted changes to the current consolidation guidance and end the deferral granted to investment companies from applying the variable interest entity (VIE) guidance. Read more
In briefIn brief: Consolidation and disclosure related to Venezuelan operations
1/13/15 | Assurance services
The SEC did not object to deconsolidation of a Venezuelan subsidiary due to currency restrictions and lack of control.
Point of viewPoint of view: Audit committee evolution - 2014 and beyond
12/19/14 | Assurance services
Audit committees’ agendas continue to expand as companies are faced with a rapidly-changing global business landscape, the proliferation of standards and regulations, increased stakeholder scrutiny and a heightened enforcement environment. As a consequence, audit committees must continue to transform and evolve to maintain and increase their effectiveness. What actions are they taking? Leading audit committees are setting a strong tone at the top, owning their agenda, building strong relationships with auditors, evaluating their informational and educational needs, and critically assessing their own performance.
In briefIn brief: Consolidation - FASB completes decision making
12/15/14 | Assurance services
The FASB has completed its decision making related to the consolidation project. The final standard is expected soon.
Quarter closeThe quarter close — Fourth quarter 2014: Publication and new video perspectives
12/8/14 | Assurance services
This edition of The quarter close provides insight into the potential effect of the revenue standard on compensation plans, what to look for to identify embedded derivatives in new or modified debt agreements, a spotlight on the FASB’s newly unveiled guidance for applying pushdown accounting, an SEC focus on internal controls, and more.
VideoNew consolidation standard - Financial services companies
12/5/14 | Assurance services
A new consolidation standard is imminent. Hear how it may impact financial services companies. PwC's Stephanie L. Stewart, Lee Vanderpool, and Craig Cooke discuss the proposal and potential implications.
VideoNew consolidation standard
12/5/14 | Assurance services
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Private company reporterPrivate company reporter - 2014 wrap-up: What to know for your financial statement close
12/5/14 | Assurance services
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In depthIn depth: Pushdown accounting now optional
12/5/14 | Assurance services
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M&A snapshotCompanies in distress: Bankruptcy process and reporting consideration (M&A snapshot)
11/13/14 | Assurance services
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Point of viewPoint of view: The interim reporting model - Time to get back to basics
11/7/14 | Assurance services
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Accounting guidesFinancial statement presentation - 2014 accounting and financial reporting guide
10/30/14 | Assurance services
The inaugural edition of our "Financial statement presentation" accounting and financial reporting guide addresses U.S. GAAP presentation and disclosure requirements of common balance sheet and income statement accounts.
M&A snapshotCompanies in distress - A successful turnaround requires decisive decision (M&A snapshot)
10/15/14 | Assurance services
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Private company reporterPrivate company reporter - PCC votes to simplify the accounting for certain intangible assets
9/22/14 | Assurance services
Under the alternative, private companies will not have to separately recognize and measure certain intangible assets.
Quarter closeThe quarter close — Third quarter 2014: Publication and new video perspectives
9/15/14 | Assurance services
This edition updates you on recent FASB, SEC and other regulatory and corporate governance topics. Learn what's new now, and what to look for in the near future. We invite you to download our Q3 publication and view our new video perspectives.
In depthIn depth: Consolidation - a new standard is imminent
8/5/14 | Assurance services
The FASB expects to issue a final standard amending the current consolidation guidance in the coming months. The new consolidation standard will make targeted changes to the current consolidation guidance and end the deferral granted to investment companies from applying the variable interest entity (VIE) guidance.
Private company reporterPrivate company reporter - PCC makes progress on intangible assets
7/22/14 | Assurance services
The Private Company Council (PCC) continues to make progress on simplifying accounting for intangible assets acquired in a business combination.
In depthIn depth: Private company variable interest entity relief
7/17/14 | Assurance services
FASB provides option to exempt certain common control leasing arrangements from the VIE model
In depthIn depth: FASB revises consolidation accounting
6/27/14 | Assurance services
A new standard, issued in June 2014, eliminates the concept of a development stage entity (DSE).
M&A snapshotCross-border acquisitions - Post-acquisition considerations (M&A snapshot)
6/9/14 | Assurance services
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M&A snapshotCross-border acquisitions - Accounting considerations relating to income taxes (M&A snapshot)
5/12/14 | Assurance services
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In briefIn brief: Consolidation - changes may affect all industries
5/9/14 | Assurance services
The FASB's consolidation project nears completion with more decisions made at this week's meeting.
Private company reporterPrivate company reporter - PCC continues discussions on intangible assets
5/1/14 | Assurance services
The PCC continued redeliberation of an alternative for intangible assets in a business combination but made no decision.
M&A snapshotCross-border acquisitions - Navigating SEC reporting requirements (M&A snapshot)
4/7/14 | Assurance services
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M&A snapshotCross-border acquisitions - Due diligence and pre-acquisition risk considerations (M&A snapshot)
3/6/14 | Assurance services
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DatalineDataline: Development stage entities - FASB proposes to eliminate DSE reporting and amend the consolidation guidance (No. 2013-31)
12/23/13 | Assurance services
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Private company reporterPrivate company reporter - PCC approves alternative that exempts certain arrangements from VIE guidance
11/15/13 | Assurance services
The PCC approved a final standard that offers private companies an exemption from applying the VIE consolidation model to certain common control leasing arrangements.
PwC comment letter (FASB)PwC comments on the FASB's proposed ASU: Applying Variable Interest Entity Guidance to Common Control Leasing Arrangements (a proposal of the Private Company Council)
10/15/13 | Assurance services
In our comment letter, we offer the FASB and PCC some observations and suggestions.
Private company reporterPrivate company reporter - August 15, 2013
8/15/13 | Assurance services
On August 7, the FASB issued an exposure draft on the definition of a public business entity and endorsed the PCC proposal for VIE considerations of common control leases.
Point of viewPoint of view: Integrated reporting: Going beyond the financial results
8/13/13 | Assurance services
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Accounting guidesGuide to Accounting for Variable Interest Entities - 2013 edition
8/8/13 | Assurance services
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Private company reporterPrivate company reporter - July 16, 2013
7/25/13 | Assurance services
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EITF observerEITF observer: A meeting synopsis - June 2013
6/14/13 | Assurance services
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DatalineDataline: Cumulative translation adjustment – A compromise to achieve consistency (No. 2013-10)
5/16/13 | Assurance services
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Point of viewPoint of view: Consolidation - A single model would enhance information reported to investors
5/6/13 | Assurance services
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EITF observerEITF observer: A meeting synopsis - March 2013
3/18/13 | Assurance services
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DatalineDataline: Highlights of the 2012 AICPA National Conference on Current SEC and PCAOB Developments (No. 2012-22)
12/13/12 | Assurance services
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EITF observerEITF observer: A meeting synopsis - June 2012
6/22/12 | Assurance services
At the EITF's June 21 meeting, the Task Force discussed the three Issues reaching a consensus-for-exposure on two Issues (12-B and 12-D). Further discussion is expected for one Issue (11-A). This edition of EITF observer provides a synopsis of the meeting.
M&A snapshotDid I buy a group of assets or a business? Why should I care? (M&A snapshot)
12/14/11 | Assurance services
Determining whether an acquired group of assets is a business has proven to be one of the more challenging aspects of applying the current M&A accounting guidance. For many transactions, the determination will be straightforward. However, the current guidance will cause many transactions that are "on the edge," and previously would have been accounted for as asset acquisitions, to be accounted for as business combinations. This edition identifies relevant considerations in determining whether a business has been acquired and why it matters not only upon acquisition but also for disposals and public company reporting.
M&A snapshotMarket participants: how their views impact your values (M&A snapshot)
9/26/11 | Assurance services
In a business combination, buyers are required to record the acquired assets and assumed liabilities of a business at their fair values. Fair value reflects the price that market participants would receive to sell an asset or pay to transfer a liability. Assets and liabilities may be used differently by different market participants, resulting in variations in values. Therefore, a market participant's view is an important aspect of the valuation process as a buyer cannot look only to its own intended use of an asset or its ability to transfer a liability at a certain price. This publication provides insight on the identification of market participants, as well as how entities can develop market participant assumptions.
M&A snapshotNoncontrolling interests -- why minority shareholder rights matter (M&A snapshot)
12/16/10 | Assurance services
The M&A Standards changed how a parent reports the minority shareholder interests in a partially owned subsidiary in its consolidated financial statements. The minority shareholder interests, or noncontrolling interests (''NCI''), are generally presented within equity as if the parent and the minority shareholders have similar economic interests. Previously, NCI were generally presented between liabilities and equity (''mezzanine equity''). This edition focuses on the classification of redeemable NCI and how different minority shareholder rights may lead to different financial reporting by the parent.
M&A snapshotThe Consolidation Standard--determining who consolidates is just the beginning (M&A snapshot)
3/11/10 | Assurance services
FASB Accounting Standard Codification Topic 810 incorporates FAS 167, Amendments to FASB Interpretation No. 46(R)), which is the U.S. standard on consolidation (the Consolidation Standard). The Consolidation Standard is effective as of January 1, 2010 for calendar year end companies and the impact will soon be reported in the first quarter reporting cycle. As a result of applying the new guidance, certain entities may need to be consolidated while other entities may need to be deconsolidated. Determining who consolidates is just the beginning.
M&A snapshotAccounting for partial acquisitions and disposals - it's not so simple! (M&A snapshot)
7/1/09 | Assurance services
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