Noncontrolling interests -- why minority shareholder rights matter (M&A snapshot)

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M&A snapshot 12/16/2010 by Assurance services
Noncontrolling interests -- why minority shareholder rights matter (M&A snapshot)

At a glance

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.

The M&A Standards1 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'').

In certain situations, however, the redemption rights held by minority shareholders may lead to mezzanine equity or even liability classification. The existence of such redemption rights may require complex accounting analysis and introduce earnings volatility.

This edition of Mergers & acquisitions - a snapshot focuses on the classification of redeemable NCI and how different minority shareholder rights may lead to different financial reporting by the parent.

1Accounting Standards Codification 805 (which incorporates FAS 141(R), Business Combinations), is the US Standard on M&A, and Accounting Standards Codification 810 (which incorporates FAS 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment to ARB No. 51) is the US Standard on noncontrolling interests (collectively the "M&A Standards").