In June, the FASB proposed targeted improvements to the related party consolidation guidance for VIEs in ASC 810. As indicated in its September 5th response letter, PwC supports the proposed ASU, subject to the Board re-visiting its proposed changes to the “related-party tie-breaker” guidance. PwC believes the proposed guidance will prove difficult to apply consistently in practice, potentially leading to undue diversity in VIE consolidation conclusions. In its letter, PwC has outlined two alternative approaches to the proposed “tie-breaker” test for the Board’s consideration.

The proposal’s other significant change is intended to provide consolidation relief to private companies that have interests in companies that are under common control. In lieu of performing a VIE consolidation analysis, the proposal would allow a private company to provide additional disclosures about its interests in a private company common control party. This alternative approach would be optional but, once elected, would be required to be applied to all common control parties going forward.

An effective date for a final standard has yet to be determined.

September 5, 2017

Ms. Susan Cosper

Technical Director

Financial Accounting Standards Board

401 Merritt 7

P.O. Box 5116

Norwalk, CT 06856-5116

Dear Ms. Cosper:

PricewaterhouseCoopers LLP appreciates the opportunity to respond to the FASB’s Proposed Accounting Standards Update, Consolidation (Topic 810) – Targeted Improvements to Related Party Guidance for Variable Interest Entities (the “ED”).

We support the proposed amendments to Topic 810, subject to resolving the concern discussed in the next paragraph. Generally, we are reluctant to endorse proposals that permit private companies to apply financial accounting standards different from those that govern public business entities. However, in this instance, we believe the proposed private company alternative, which provides VIE consolidation relief to a reporting entity having involvement with common control parties, is an appropriate one in the circumstances. We also support the proposed changes that require a reporting entity to determine whether, in certain circumstances, substantially all of the activities of a VIE either involve or are conducted on behalf of a member of a related party group.

We endorse the Board’s intention to replace the current “common control-party tie breaker” test with an approach that allows for more judgment when evaluating whether decision-making authority should be attributed to an entity within the common control group. However, we have reservations about whether the guidance, as proposed, will prove operational when applied in practice. Although we support the objective of this element of the proposal, we are concerned that, absent additional implementation guidance or the articulation of a broader underlying decision principle, the proposed guidance may not result in consistent consolidation conclusions being reached in similar circumstances. As discussed in our response to Question 7, we offer two alternatives to the proposed approach. We believe that each will be simpler to apply in practice, while also being responsive to the Board’s concerns about retaining a robust consolidation model from which to evaluate structured variable interest “parking” arrangements involving intermediate-level common control parties.

The appendix to this letter contains our detailed responses to the Questions for Respondents in the ED, and includes additional observations and in some cases expands on these comments.

If you have any questions, please contact David Schmid at (973) 236-7247 or John Bishop at (973) 236-4420.

Sincerely,

PricewaterhouseCoopers LLP

No. As a general principle, we are reluctant to endorse proposals that permit private companies to apply financial accounting standards different from those for public business entities. However, in this instance, we do not object to the proposed VIE scope exception for private companies, largely for the reasons cited in BC12 through BC14 of the ED. We acknowledge that the complexity and formality of contractual arrangements between private companies under common control can vary widely, depending on the entities’ size, sophistication of the parties, ownership arrangements and the like.

Yes. As noted above, we believe a private company should have this option, subject to satisfying the incremental conditions in ASC 810-10-15-17AD. If the parent entity and/or the legal entity being evaluated for consolidation are public business entities, it is likely that contractual arrangements between the parties will be formalized and subject to greater oversight.

We believe that the accounting alternative in Update 2014-07 should be replaced by the proposed broader private company alternative. There may be instances when a private company believes its financial reporting is enhanced by availing itself of the option in Update 2014-07, while continuing to apply the VIE consolidation guidance to all other common control entities. However, in the interest of minimizing diversity in practice, we believe the private company alternative should be the only option, applicable to all common control entities that satisfy the conditions in ASC 810-10-15-17AD.

We believe that the proposed incremental disclosures will provide sufficient information about the reporting entity’s involvement with a common control entity when the accounting alternative has been applied.

We believe that the “full attribution” approach currently required by ASC 810-10-55-37D is unduly harsh; that is, it has been our experience that its application sometimes leads to a decision maker consolidating a VIE even though its involvement with the VIE is arguably consistent with that of an agent, not a principal. The proposed proportionate approach aligns the accounting model with the economics that the decision maker is entitled to receive through its indirect interest in a VIE. We believe that alignment should be respected regardless of common control relationships, and that it will lead to better financial reporting in the standalone financial statements of a decision maker.

In the circumstances cited in this question, we believe it is appropriate for a reporting entity to evaluate whether it is the primary beneficiary of a VIE. Further, we believe it is appropriate to conclude that, in certain circumstances, no intermediate-tier common control entity should consolidate a VIE, despite an indirect controlling financial interest in the VIE at the parent level.

As discussed more fully below, however, we are concerned that, absent additional guidance in the proposal, a common control group reporting entity will find it difficult to conclude whether decision-making authority should be attributed to it in the circumstances contemplated in ASC 810-10-25-44A. We believe that undue diversity regarding consolidation conclusions may result if the guidance in that paragraph is adopted as proposed. If the Board finds itself unable to articulate a decision principle (or a more prescriptive set of factors) that can be reasonably expected to lead to consistent consolidation conclusions in these circumstances, we recommend that the Board consider the two alternative approaches outlined in our response to Question 7.

We are concerned that the proposed factors will not facilitate consistent conclusions regarding whether decision-making authority should be attributed to a common control group party. We acknowledge that the proposed factors largely align with those currently required to be considered when applying the “most closely associated” assessment in ASC 810-10-25-44. However, under the current framework, the only issue is identifying which of the parties in the common control group should consolidate the underlying VIE – not whether any of those parties should do so. Although the current “tie breaker” test arguably leads to inappropriate consolidation of a VIE by a common control group party in certain circumstances (because one party within the group must consolidate the VIE), we have generally considered the enumerated factors to be sufficient in the context of this analysis.

Under the proposal, a reporting entity must determine whether decision-making authority wielded by a common control group agent should be attributed to it. However, as noted above, unlike current practice, the proposed model does not mandate consolidation by a common control group party when the circumstances in ASC 810-10-25-44A exist. Under the proposal, a reporting entity may conclude that neither it nor any other member within the group warrants attribution of decision-making authority, in which case no common control party would consolidate the underlying VIE (exclusive of the parent). We believe that the objective of the proposed paragraph is an appropriate one, as stated in our response to Question 6.

However, we are concerned that, absent additional implementation guidance, evaluating whether decision-making authority should be attributed to a common control party in accordance with ASC 810-10-25-44A will not be operational in practice. We believe that consistent application of this concept (attribution of decision making) may be difficult to achieve. In accordance with the proposal’s decision tree, it will have been determined that substantially all of the activities of the underlying VIE do not involve, and are not conducted on behalf of, a single variable interest holder within the common control group. Accordingly, when ASC 810-10-25-44A must be applied, each common control party’s involvement with the VIE will necessarily entail a degree of involvement less than that implied by the “substantially all” threshold. As a consequence, the nature and extent of each common control party’s involvement with the VIE may vary widely, both qualitatively and quantitatively, when compared to other parties’ involvement with the entity (including, potentially, third-party variable interest holders). In view of this potential diversity, we believe that the four factors enumerated in the proposed paragraph will prove insufficient to facilitate informed – and consistent – conclusions whether a particular single variable interest holder’s involvement with a VIE warrants attributing decision making authority to it.

We also observe that, unless the ASU provides additional guidance, not only may inconsistent consolidation conclusions stem from applying ASC 810-10-25-44A, but entities may too often conclude that no intermediate common control party should consolidate a VIE in these circumstances, given the substantial degree of judgment involved.

In lieu of developing more prescriptive factors or providing additional implementation guidance with respect to the proposed ASC 810-10-25-44A, we suggest that the Board consider one of these alternative approaches:

We also believe that clarification is warranted regarding how related parties that share power should apply the guidance in ASC 810-10-25-44A. This concern also extends to ASC 810-10-25-44. See our response to Question 8 for more details.

Refer to our responses to Questions 6 and 7.

In addition, the following observations address situations when power is shared between two or more related parties.

We agree with the proposed transition requirements.

The proposed transition disclosure requirements are appropriate.

Given the targeted nature of the proposed changes to Topic 810, we believe that most reporting entities will not require much time to evaluate and implement the amendments. Accordingly, assuming an issuance date no later than the first quarter of 2018, we believe that the final ASU should be effective for fiscal years beginning after December 15, 2018, with earlier adoption permitted.

Yes. In this instance, given the limited scope of the proposed changes, we believe the ASU’s effective date should be the same for all entities.

Yes.