The FASB issued a new consolidation standard, on February 18, 2015 that makes targeted amendments to the current consolidation guidance. The changes are designed to address most of the concerns of the asset management industry and end the deferral granted to investment companies from applying the VIE guidance. However, entities across all industries will be impacted, particularly those that use limited partnerships, e.g., the oil and gas, transportation, and real estate sectors. In addition, companies in any industry that outsource decision making or have historically applied the related party tiebreaker may see a change in their consolidation conclusion and disclosures. The new guidance also provides a new scope exception to registered money market funds and similar unregistered money market funds.
Key developments in the FASB Consolidation standard
- The FASB proposed changes to the accounting guidance used to determine whether one entity should consolidate another in 2011. The proposal focused primarily on determining whether a party with decision-making power with respect to a variable interest entity is acting in the capacity of a principal with respect to the entity or as an agent with respect to other variable interest holders. The consideration, as proposed, was also relevant for a partnership that is a "voting interest entity." A principal would consolidate the entity while an agent would not. The proposal would also end the indefinite deferral of the application of existing consolidation guidance by certain investment entities (asset managers).
- The FASB reconsidered many key aspects of the proposal in light of the feedback it obtained from comment letter respondents. Importantly, rather than requiring a discrete "principal-versus-agent" analysis, the FASB tentatively decided to integrate the underlying concepts and amend several steps in the consolidation guidance. Consolidation of money market funds registered with the SEC and similar unregistered funds would be precluded. Other key decisions made will impact, among other items:
– When an entity is a variable interest entity
Limited partnerships or similar entities would be evaluated for consolidation under the variable interest entity model when the investors do not hold substantive kick-out, liquidation or participating rights. Consequently, more entities would be subject to the variable interest entity model than today.
– How to evaluate economics and related parties when determining who consolidates a variable interest entity
The criteria for determining which party should consolidate would remain broadly consistent – i.e., based on who has both power over the most significant activities and exposure to potentially significant economics, with a few notable exceptions. First, fees paid to a decision-maker that are “at market” and “commensurate with services provided” would be excluded in determining whether the decision maker’s economics are “potentially significant.” In addition, how related parties and de facto agents of a decision maker impact the consolidation assessment would change. These changes individually and in the aggregate could change who consolidates an entity.
- The consolidation decision is fundamental in financial reporting and has a pervasive impact on the financial statements. Establishing sound application guidance in this area has been challenging for standard-setters for a very long time.
What's Next for the FASB Consolidation standard?
The standard is effective for public business entities for annual periods beginning after December 15, 2015. Nonpublic business entities are required to apply the standard for annual periods beginning after December 15, 2016. Early adoption is allowed, including in any interim period.
We will soon issue an In depth summarizing the standard. Also, on March 10 we will host two industry-focused webcasts — one for the financial services industry at 1:00 pm ET, and one for commercial and industrial companies at 3:30 pm ET — at which we’ll discuss further details of the key changes made by this standard and its effects on companies. We invite you to register for one of these webcasts via the links above.
Accounting guidesFinancial statement presentation guide - 2014 second edition (updated July 2015)
7/22/15 | Assurance services
PwC's popular Financial statement presentation guide addresses U.S. GAAP presentation and disclosure requirements of common balance sheet and income statement accounts.
PodcastEpisode 2: Consolidation standard overview
Overview of the new consolidation standard which can impact companies across all industries.
Accounting guidesGuide to Accounting for Variable Interest Entities - 2013 second edition (updated June 2015)
6/29/15 | Assurance services
Our VIE guide, updated June 2015, brings together all of the relevant PwC guidance on the accounting for variable interest entities under US GAAP; provides an overall framework for the application of the VIE model; highlights key questions and answers; and offers our perspectives, based on our analysis of the guidance and experience in applying it.
Quarter closeThe quarter close — Second quarter 2015: Publication and video perspectives
6/15/15 | Assurance services
This edition features recent business, FASB and regulatory developments, including mitigating foreign currency volatility, the SEC's pay-for-performance proposal, developments in the new revenue recognition standard, US GAAP accounting simplifications, and more.
M&A snapshotCompanies in distress - Tax planning and accounting considerations (M&A snapshot)
6/10/15 | Assurance services
Tax planning and accounting considerations for companies in bankrtupcy and those emerging from bankruptcy.
WebcastUnderstanding the New Consolidation Standard for Real Estate - Webcast replay
Watch a replay of our recorded webcast in which we discusses how the real estate industry may be impacted by the recently issued ASU 2015-02, Consolidation – Amendments to the Consolidation Analysis. Speakers provide an overview of common structures found in the real estate industry and discuss how the amendments will impact those structures.
In depthIn depth: New consolidation standard - updated insights
4/29/15 | Assurance services
An updated analysis of the FASB's new standard amending the current consolidation guidance.
M&A snapshotCompanies in distress - Emerging from bankruptcy (M&A snapshot)
4/29/15 | Assurance services
This edition discusses preparing for fresh-start reporting, and accounting considerations when emerging from bankruptcy.
Quarter closeThe quarter close — First quarter 2015: Publication and new video perspectives
3/16/15 | Assurance services
The quarter close publication and video perspectives provide insight into the business and accounting impacts of declining oil and gas prices, recognizing the accounting implications of the Affordable Care Act, FASB, IASB and TRG developments related to implementing the new revenue standard, updates on FASB’s simplification proposals for stock-based compensation and income taxes, and more.
In depthIn depth: New consolidation standard - The FASB guidance allows early adoption now (Superseded by In depth 2015-08 on 04/29/2015)
2/26/15 | Assurance services
An analysis of the FASB's new consolidation standard amending the current consolidation guidance. (Superseded by In depth 2015-08 on 04/29/2015)
In the loopIn the loop: Consolidation changes — do they affect your company?
2/24/15 | Assurance services
The FASB's new guidance may impact consolidation decisions for all companies.
In briefIn brief: Consolidation - FASB issues final standard
2/19/15 | Assurance services
The FASB issued a final standard amending the current consolidation guidance. Early adoption is allowed.
WebcastNavigating the FASB’s new consolidation standard - The impact on commercial and industrial companies webcast - On-demand (CPE-eligible)
Our webcast provides insight into the impact FASB’s new consolidation standard will have on commercial and industrial companies in the automotive, communications, entertainment & media, energy, healthcare, industrial products, pharmaceuticals, retail & consumer, transportation, technology, and utility industries. Watch a replay or participate in the on demand (CPE-eligible) version of this webcast.
WebcastNavigating the FASB’s new consolidation standard - The impact on the financial services industry - On-demand (CPE-eligible)
Our webcast provides insight into the impact FASB’s new consolidation standard will have on companies within the financial services industry. Watch a replay or participate in the on demand (CPE-eligible) version of this webcast.
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.
In depthIn depth: Collateralized financing entities - FASB provides new measurement alternative
12/19/14 | Assurance services
FASB provided new measurement alternative to reduce earnings volatility from the consolidation of securitized vehicles.
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
A new consolidation standard is imminent. How will it impact you? Hear PwC's Stephanie L. Stewart, Lee Vanderpool, and Craig Cooke discuss the proposal and potential implications.
Private company reporterPrivate company reporter December 2014
2014 wrap-up: What to know for your financial statement close
12/5/14 | Assurance services
We provide a “one-stop shop” for the standard setting that could affect your 2014 private company financial statements.
In depthIn depth: Pushdown accounting now optional
12/5/14 | Assurance services
New guidance issued by the FASB makes pushdown accounting optional for public and nonpublic companies effective now.
M&A snapshotCompanies in distress - Bankruptcy process and reporting consideration (M&A snapshot)
11/13/14 | Assurance services
Overview of the bankruptcy process and key financial reporting considerations in bankruptcy.
Point of viewPoint of view: The interim reporting model - Time to get back to basics
11/7/14 | Assurance services
PwC provides its point of view on refocusing the interim reporting model to enhance efficiency and relevancy.
M&A snapshotCompanies in distress - A successful turnaround requires decisive decision (M&A snapshot)
10/15/14 | Assurance services
Signs your company might be in distress and actions it can take to turn the business around.
Private company reporterPrivate company reporter September 2014
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
In cross-border deals, buyers shouldn't underestimate aspects of a transaction that require attention post-acquisition.
M&A snapshotCross-border acquisitions - Accounting considerations relating to income taxes (M&A snapshot)
5/12/14 | Assurance services
In cross-border deals, the acquisition of a foreign business can introduce complexities in accounting for income taxes.
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
This is the second in our series focused on navigating the waters of a cross-border acquisition. The series looks at various aspects along the deal continuum, including pre-acquisition due diligence and strategies, financial reporting requirements, tax implications, and post-acquisition considerations. This edition provides insights on SEC and other financial reporting requirements that may apply in a cross-border acquisition.
M&A snapshotCross-border acquisitions - Due diligence and pre-acquisition risk considerations (M&A snapshot)
3/6/14 | Assurance services
This is the first in a series focused on navigating the waters of a cross-border acquisition. This edition focuses on the pre-acquisition phase, including how GAAP differences can impact valuation and how a company can manage the financial risk exposure that arises from a cross-border acquisition.
DatalineDataline: Development stage entities - FASB proposes to eliminate DSE reporting and amend the consolidation guidance
12/23/13 | Assurance services
The recent FASB proposal aims to eliminate the development stage entity reporting requirements and also amends the consolidation guidance.
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 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
This Point of view highlights how companies may benefit from integrated reporting in response to stakeholders’ calls for enhanced disclosure of environmental, social, governance and other nonfinancial information. It also outlines the benefits some companies are realizing as they explore integrated reporting.
- Private company reporter - July 16, 2013
7/25/13 | Assurance services
On July 16, the PCC proposed to the FASB an accounting alternative that would exempt nonpublic entities from applying certain variable interest entity guidance. This edition of Private company reporter provides further information on the proposed alternative, as well as highlights of other recent developments related to private company reporting.
EITF observerEITF observer: A meeting synopsis - June 2013
6/14/13 | Assurance services
The EITF met on June 11, 2013 to discuss six issues. PwC's EITF observer provides you an insightful summary of decisions reached and the changes affecting US GAAP.
DatalineDataline: Cumulative translation adjustment – A compromise to achieve consistency
5/16/13 | Assurance services
On March 5, 2013 the FASB issued ASU No. 2013-05, which amends ASC 830, Foreign Currency Matters, and ASC 810, Consolidation,to address diversity in practice related to the release of cumulative translation adjustments ("CTA") into earnings upon the occurrence of certain derecognition events. This Dataline provides an overview of the ASU.
Point of viewPoint of view: Consolidation - A single model would enhance information reported to investors
5/6/13 | Assurance services
This Point of view highlights that a single definition of control leading to one consolidation model in the U.S. would benefit all stakeholders.
EITF observerEITF observer: A meeting synopsis - March 2013
3/18/13 | Assurance services
At the EITF's March 14 meeting, the Task Force discussed four Issues, reaching a final consensus on two issues (12-B and 12-G) and consensus-for-exposure on one Issue (13-B). Further discussion is expected on one issue (12-F). This edition of EITF observer provides a synopsis of the meeting.
DatalineDataline: Highlights of the 2012 AICPA National Conference on Current SEC and PCAOB Developments
12/13/12 | Assurance services
The 2012 AICPA National Conference on Current SEC and PCAOB Developments (the Conference) was held on December 3, 4, and 5, 2012. Conference presenters included representatives from regulatory and standard-setting bodies, auditors, users, preparers, industry experts, and an investor panel. Remarks centered mainly on the status of potential incorporation of IFRS into the U.S. financial reporting system, updates on regulatory and financial reporting matters, capital formation, and the auditing profession’s impact on the reliability and usefulness of financial statements.
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
Accounting for partial acquisitions and disposals - it's not so simple! In an economic environment where many companies are buying and selling portions of businesses, the M&A Standards will have an impact on how companies account for these types of transactions. At first glance, the fundamental concept of "control" that drives the accounting seems easy to understand. If a company gains control, the acquisition is a business combination. If a company loses control, it deconsolidates the subsidiary. If a company maintains control, the transaction is recorded in equity. Simple, right? Not so fast!