Dataline: Consolidation of VIEs and partnerships--more changes under consideration -- FASB proposes to require principal versus agent analysis (No. 2011-33)

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Dataline / In depth 11/17/2011 by Assurance services
Dataline: Consolidation of VIEs and partnerships--more changes under consideration -- FASB proposes to require principal versus agent analysis (No. 2011-33)

At a glance

On November 3, 2011, the FASB issued an exposure draft proposing changes to the consolidation accounting guidance for variable interest entities (VIEs) and partnerships that are not VIEs. A reporting entity that has a variable interest in a VIE and decision-making authority would need to assess whether it uses its decision-making authority to act in a principal or an agent capacity. A decision maker determined to be an agent would not consolidate the entity. In addition, the presumption that a general partner controls a partnership that is a voting interest entity (VOE) can be overcome by applying the same principal versus agent assessment and determining that the general partner is using its power in an agent capacity. This Dataline...

On November 3, 2011, the FASB issued an exposure draft proposing changes to the consolidation accounting guidance for variable interest entities (VIEs) and partnerships that are not VIEs. A reporting entity that has a variable interest in a VIE and decision-making authority would need to assess whether it uses its decision-making authority to act in a principal or an agent capacity. A decision maker determined to be an agent would not consolidate the entity. In addition, the presumption that a general partner controls a partnership that is a voting interest entity (VOE) can be overcome by applying the same principal versus agent assessment and determining that the general partner is using its power in an agent capacity.

The proposal would rescind the deferral for certain types of investment entities1 of the requirement to apply the FAS 1672 amendments for VIEs. The proposal could also impact the consolidation conclusion for other types of VIEs and other partnerships. The effective date has not been determined. The guidance would need to be applied retrospectively unless it is impracticable. Comments on the proposal are due on January 17, 2012.

This Dataline takes a look at the key provisions of the proposal and shares our observations on it.


1 ASU 2010-10, Consolidation (Topic 810), Amendments for Certain Investment Funds
2 FAS 167, Amendments to FASB Interpretation No. 46(R), is codified in ASC 810.