When Are You Required to Consolidate? FASB’s Accounting Standards Update Affects Requirements for Business Consolidation

consolidate 2 (150x113)In February 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-02, Consolidation (Topic 810) Amendments to the Consolidation Analysis. This ASU was issued in response to users’ concerns regarding current guidance, which could require a reporting entity to consolidate another entity when the contractual rights of the reporting entity do not give it the ability to act primarily on its own behalf. Often, as a result, entities are required to issue consolidated financial statements when users really want to see “stand alone” financial results.

While the entire ASU should be reviewed for its implications in specific circumstances, this new guidance places an emphasis on evaluating variable interests with a focus on the risk of loss when determining if a controlling financial interest exists. The following is a brief summary of how the ASU differs from current generally accepted accounting principles (GAAP):

  1. Under this ASU, all reporting entities are within the scope of Accounting Standards Codification (ASC) Subtopic 810-10, including limited partnerships and similar legal entities.
  2. The presumption that a general partner controls a limited partnership has been eliminated. The update provides guidance with respect to determining when an entity should consolidate a limited partnership.
  3. Under certain conditions, fees paid to decision makers may no longer cause those decision makers to have to consolidate a variable interest entity.
  4. Further, the ASU reduces the extent to which related party arrangements could cause an entity to be considered a primary beneficiary.

The ASU will be effective for periods beginning after December 15, 2015, for public companies and one year later for private companies and not-for-profit organizations.

If you have any additional questions, contact the expert listed below at PYA, (800) 270-9629.


Doug Arnold

Doug Arnold

Principal

Related Posts
Certain employees of governmental and not-for-profit organizations may qualify for a program that offers student loan forgiveness with zero tax liability.   The Public Service Loan Forgiveness (PSLF) Program gives full-time...
Read More

Tax-Free Student Loan Forgiveness for Eligible Public Servants

The new Tax Cuts and Jobs Act (TCJA) can be confusing for many-- especially small business owners.  Although many aspects of the TCJA have been discussed, one component of the...
Read More

Government Clamps Down on “Deductible Fun” for Businesses

As businesses consider the impact of the Tax Cuts and Jobs Act (TCJA) introduced late last year, the corporate tax rate is receiving substantial attention.  However, according to a 2014...
Read More

2018 Tax Reform – The Excess Loss Limitation Likely to Squeeze Owners of Cyclical Businesses

A recent Accounting Standards Update (ASU) addresses land easements and their accounting under the new lease standards.  In January 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-01 Leases:...
Read More

Land Easements—Guidance for Implementing New Lease Accounting Standards

Many Americans have a 401(k) retirement savings plan as a benefit of employment with their employers.  They contribute a percentage of their compensation to their 401(k) each pay period with...
Read More

Taking Distributions from Your 401(k): What You Need to Know

Stakeholders seeking clarity were behind the latest Accounting Standards Update (ASU) issued by the Financial Accounting Standards Board (FASB).  In response to questions raised, the FASB released ASU 2018-03: Technical...
Read More

Measuring Fair Value: New ASU Offers Clarity

Are you feeling unease about the impending Tuesday, April 17 tax filing deadline? Fear not –the Internal Revenue Service (IRS) permits a taxpayer to file an extension to allow time...
Read More

The Tax Deadline Looms: Need More Time?

The ink on the Tax Cuts and Jobs Act (TCJA), which swept in a tidal wave of changes to federal tax rules, had been dry for only seven weeks before...
Read More

New Budget Agreement Brings Additional Tax Changes

The Financial Accounting Standards Board (FASB) has set forth amended guidance aimed at simplifying and reclassifying certain features of financial instruments. Accounting Standards Update (ASU) No. 2017-11 – Earnings Per...
Read More

The Update on Down Round—FASB Reclassifies Earnings Per Share

Share This Insight

If you received value from this article, please share it with your network (e.g., Facebook, Twitter, LinkedIn). Icons below for your convenience.

Stay Current

* indicates required
Monthly eNewsletters
See more newsletter and alert options.

PYA Population Health Ascend

PYA Healthcare Blog

PYA Thought Leadership Services

The Healthcare Loop