Changes to consolidation standards have been made over the years to address the increased use of off balance sheet structures. However, this has added complexity. In this Point of view we highlight that a single definition of control would provide more clarity for stakeholders on when consolidation is required, and it would benefit preparers by reducing the complexity of today’s rules. Investors would also benefit from a single consolidation model that provides appropriate consolidation outcomes and disclosures.
The FASB is currently addressing consolidation accounting and this is a step in the right direction. However, there is an opportunity to go further and establish a single definition of control. The definition should be consistent with international accounting standards that consider whether an entity has decision-making power over the activities that drive another entity’s economic performance and can realize the economic benefits, or has exposure to the economic risks, of that entity. That definition would provide the foundation for one consolidation model that could be applied to entities that exist today and that may arise in the future.