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


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