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.
– 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 of these types of entities would be subject to the variable interest entity model than today.
For all other entities, instead of focusing on whether there is a single equity holder that is able to remove an outsourced decision maker with a variable interest, as is done today, the standard requires the reporting entity to first consider the rights of all the equity holders at risk. If the equity holders have substantive rights that are deemed to give them the power to direct the entity’s most significant activities, then the entity would not be a VIE under this characteristic. This amendment may reduce the number of entities that are VIEs.
– Determination of whether the decision maker’s fee arrangement is a variable interest
Fewer fee arrangements will be variable interests under the new standard; as such, this will reduce the number of entities that are considered variable interest entities.
– 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 inaugural edition of our consolidation and equity method accounting guide addresses the accounting for consolidation matters under U.S. GAAP reflecting the latest standards. The guide discusses the consolidation framework and equity method of accounting, providing specific guidance and examples related to various topics.
This edition features recent FASB and SEC developments, as well as accounting and governance hot topics.
Learn key aspects of the new consolidation guidance and how it may impact financial services companies.
Learn key aspects of the new consolidation guidance and how it may impact you.
A comprehensive guide to consolidation and equity method of accounting under US GAAP.
This edition features recent FASB, SEC, and PCAOB developments, as well as accounting and governance hot topics.
PwC's popular Financial statement presentation guide addresses U.S. GAAP presentation and disclosure requirements of common balance sheet and income statement accounts.
Overview of the new consolidation standard which can impact companies across all industries.
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.
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.
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.