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Consoldiation (Topic 810) - Targeted Improvements to Related Party Guidance for Variable Interest Entitites - FASB ASU No. 2018-17 NEW!

FASB Discusses Targeted Improvements to Consolidation Guidance 

Consolidation - FASB Discusses Targeted Improvements 

Consolidation (Topic 810): Interests Held Through Related Parties That Are Under Common Control - FASB ASU 2016-17 

Consolidation (Topic 812) - Reorganization - FASB Proposed ASU 2017-280 

FASB Proposed Accounting Standards Update No. 2017-240 - Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interst Entities 

FASB Accounting Standards Update No. 2015-02 - Consolidation (Topic 810): Amendments to the Consolidation Analysis

FASB Accounting Standards Update No. 2016 -17 , Consolidation (Topic 810): Interests Held through Related Parties That Are Under Common Control

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Consoldiation (Topic 810) - Targeted Improvements to Related Party Guidance for Variable Interest Entitites - FASB ASU No. 2018-17

Summary - The FASB has issued Accounting Standards Update (ASU) No. 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities that reduces the cost and complexity of financial reporting associated with consolidation of variable interest entities (VIEs). A VIE is an organization in which consolidation is not based on a majority of voting rights.

The new guidance supersedes the private company alternative for common control leasing arrangements issued in 2014 and expands it to all qualifying common control arrangements.

Under the new standard, a private company could make an accounting policy election to not apply VIE guidance to legal entities under common control (including common control leasing arrangements) when certain criteria are met. This accounting policy election must be applied by a private company to all current and future legal entities under common control that meet the criteria for applying the alternative. A private company will be required to continue to apply other consolidation guidance, specifically the voting interest entity guidance.  

Additionally, a private company electing the alternative is required to provide detailed disclosures about its involvement with, and exposure to, the legal entity under common control.

The ASU also amends the guidance for determining whether a decision-making fee is a variable interest.  The amendments require organizations to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety (as currently required in GAAP). Therefore, these amendments likely will result in more decision makers not consolidating VIEs.

For organizations other than private companies, the amendments in this ASU are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The amendments in this ASU are effective for a private company for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Early adoption is permitted.

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© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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FASB Discusses Targeted Improvements to Consolidation Guidance

Summary - As reported in its "Summary of Board Decisions" publication, the FASB met on June 27, 2018, and discussed comment letter feedback received on its proposed Accounting Standards Update, Consolidation (Topic 812): Reorganization. The FASB decided to continue its existing project to reorganize Topic 810, Consolidation. The FASB instructed its staff to develop nonauthoritative educational material to address the more difficult parts of consolidation guidance with the goal of supporting and supplementing the reorganized authoritative consolidation guidance.

The FASB also ratified the consensus reached at the June 7, 2018 EITF meeting on Issue No. 17-A, “Customer’s Accounting for Implementation, Setup, and Other Upfront Costs (Implementation Costs) Incurred in a Cloud Computing Arrangement That Is Considered a Service Contract."

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© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Consolidation - FASB Discusses Targeted Improvements

Summary - As discussed in its "Summary of Board Decisions" publication, the FASB met on May 16, 2018, and discussed the feedback received on its proposed Accounting Standards Update (ASU), Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. The FASB reached a number of decisions, including to:

  • Confirm its decision to allow a private company (reporting entity) to elect an accounting alternative through an accounting policy election to not apply variable interest entity (VIE) guidance to legal entities under common control if both the parent and the legal entity being evaluated for consolidation are not public business entities.
  • Clarify and provide illustrative guidance on how control is established for purposes of applying the private company accounting alternative.
  • Align the effective date and transition guidance for the private company accounting alternative with the effective date and transition guidance in ASU No. 2016-03, Intangibles—Goodwill and Other (Topic 350), Business Combinations (Topic 805), Consolidation (Topic 810), Derivatives and Hedging (Topic 815): Effective Date and Transition Guidance.
  • Confirm its decision to require indirect interests held through related parties in common control arrangements to be considered on a proportional basis when determining whether fees paid to decision makers and service providers are variable interests (decision-making fee guidance).
  • Not make any amendments to the VIE related party guidance for determining the primary beneficiary of a VIE.
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© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Consolidation (Topic 810): Interests Held Through Related Parties That Are Under Common Control - FASB ASU 2016-17

Summary These amendments change the evaluation of whether a reporting entity is the primary beneficiary of a variable interest entity by changing how a reporting entity that is a single decision maker of a variable interest entity treats indirect interests in the entity held through related parties that are under common control with the reporting entity.                                                             
 
If a reporting entity satisfies the first characteristic of a primary beneficiary (such that it is the single decision maker of a variable interest entity), the amendments require that reporting entity, in determining whether it satisfies the second characteristic of a primary beneficiary, to include all of its direct variable interests in a variable interest entity and, on a proportionate basis, its indirect variable interests in a variable interest entity held through related parties, including related parties that are under common control with the reporting entity.

Effective - Effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. If an entity adopts the pending content that links to this paragraph in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.

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© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Consolidation (Topic 812) - Reorganization - FASB Proposed ASU 2017-280

Summary - The FASB has issued proposed Accounting Standards Update (ASU), Consolidation (Topic 812): Reorganization. The FASB is issuing this proposed ASU in response to stakeholders' concerns that the consolidation guidance in Topic 810, Consolidation, as currently organized, is difficult to understand and navigate.

To address those concerns, the amendments in this proposed ASU would reorganize and clarify certain items within the consolidation guidance. The amendments to reorganize the consolidation guidance include the amendments in the proposed ASU, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities, for illustrative purposes only. That proposed ASU has been exposed for public comment separately.

Specifically, the consolidation guidance currently in Topic 810 would be reorganized into a new Topic (Topic 812), with separate Subtopics for variable interest entities (VIEs) and voting interest entities (Subtopics 812-20, Consolidation-Variable Interest Entities, and 812-30, Consolidation-Voting Interest Entities, respectively). The guidance for "Consolidation of Entities Controlled by Contract" currently in Topic 810 would be moved to Topic 958, Not-for-Profit Entities, because that guidance is applicable only for not-for-profit entities. The guidance currently in Subtopic 810-30 for research and development arrangements would be superseded. Certain areas of the guidance would be clarified to make the consolidation guidance easier to understand without the intent of: (a) changing analyses performed, or (b) outcomes currently reached by stakeholders.

Comments on the proposed ASU are due December 4, 2017.

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© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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FASB Proposed Accounting Standards Update No. 2017-240 - Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interst Entities

Summary - The FASB has issued a proposed Accounting Standard Update (ASU) intended to reduce the cost and complexity of financial reporting associated with consolidation of variable interest entities (VIEs). The proposed ASU is based on recommendations from the Private Company Council.
 
The proposed ASU would address private company concerns around the difficulty of navigating and applying current VIE guidance to common control arrangements. Under the proposed amendments, a private company (reporting entity) would not have to apply VIE guidance to legal entities under common control (including common control leasing arrangements) if both the parent and the legal entity being evaluated for consolidation are not public business entities.
 
The accounting alternative would provide an accounting policy election that a private company would apply to all current and future legal entities under common control that meet the criteria for applying this alternative that could not be applied to select common control arrangements. If the alternative is elected, a private company still would be required to follow other consolidation guidance, particularly the voting interest entity guidance, unless another scope exception applies. Additionally, it would require a private company to provide detailed disclosures about its involvement with and exposure to the legal entity under common control.
 
The proposed ASU also would amend certain VIE guidance for related party arrangements. Stakeholders are asked to review and provide comment on the proposed ASU by September 5, 2017.
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© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

FASB Accounting Standards Update No. 2015-02 - Consolidation (Topic 810): Amendments to the Consolidation Analysis

Summary - The amendments in ASU 2015-02 are intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions).
In addition to reducing the number of consolidation models from four to two, the new standard simplifies the FASB Accounting Standards Codification™ and improves current GAAP by:

  • Placing more emphasis on risk of loss when determining a controlling financial interest.
  • Reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity (VIE).
  • Changing consolidation conclusions for public and private companies in several industries that typically make use of limited partnerships or VIEs.
Effective Date - Effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. For all other entities, the requirements are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. ASU 2015-02 may be applied retrospectively in previously issued financial statements for one or more years with a cumulative-effect adjustment to retained earnings as of the beginning of the first year restated

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© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

FASB Accounting Standards Update No. 2016 -17 , Consolidation (Topic 810): Interests Held through Related Parties That Are Under Common Control

Summary -  The FASB has issued ASU No. 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control. The amendments affect reporting entities that are required to evaluate whether they should consolidate a variable interest entity in certain situations involving entities under common control. Specifically, the amendments change the evaluation of whether a reporting entity is the primary beneficiary of a variable interest entity by changing how a reporting entity that is a single decision maker of a variable interest entity treats indirect interests in the entity held through related parties that are under common control with the reporting entity.
 
The amendments do not change the characteristics of a primary beneficiary in current GAAP. A primary beneficiary of a variable interest entity has both of the following characteristics: (1) the power to direct the activities of a variable interest entity that most significantly impact the variable interest entity's economic performance; and (2) the obligation to absorb losses of the variable interest entity that could potentially be significant to the variable interest entity or the right to receive benefits from the variable interest entity that could potentially be significant to the variable interest entity.
 
If a reporting entity satisfies the first characteristic of a primary beneficiary (such that it is the single decision maker of a variable interest entity), the amendments require that reporting entity, in determining whether it satisfies the second characteristic of a primary beneficiary, to include all of its direct variable interests in a variable interest entity and, on a proportionate basis, its indirect variable interests in a variable interest entity held through related parties, including related parties that are under common control with the reporting entity. That is, under the amendments, a single decision maker is not required to consider indirect interests held through related parties that are under common control with the single decision maker to be the equivalent of direct interests in their entirety. Instead, a single decision maker is required to include those interests on a proportionate basis consistent with indirect interests held through other related parties.
 
If, after performing that assessment, a reporting entity that is the single decision maker of a variable interest entity concludes that it does not have the characteristics of a primary beneficiary, the amendments continue to require that reporting entity to evaluate whether it and one or more of its related parties under common control, as a group, have the characteristics of a primary beneficiary. If the single decision maker and its related parties that are under common control, as a group, have the characteristics of a primary beneficiary, then the party within the related party group that is most closely associated with the variable interest entity is the primary beneficiary.
 
The amendments are effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. Early adoption is permitted.
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© 2016 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.