Friday, February 20, 2015

FASB Streamlines Consolidation Guidance

[This story previously appeared in Securities Regulation Daily.]

By Mark S. Nelson, J.D.

The Financial Accounting Standards Board (FASB) said it has streamlined its consolidation guidance. The accounting standard setter said this week that ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, deals with the consolidation of legal entities, including limited partnerships, limited liability corporations, and securitization structures.

Specifically, the new guidance cuts the number of consolidation models from four to two and clarifies that risk of loss is a key factor in deciding if a controlling financial interest exists, rather than just looking to fee arrangements. Other clarifications impact the treatment of variable interest entities.

FASB Chairman Russell G. Golden said accounting professionals will find the guidance “simplifies” the consolidation analysis. “Stakeholders were concerned that current guidance in certain consolidation situations does not provide useful information — resulting in users requesting supplemental deconsolidated financial statements to analyze the reporting company’s economic and operational results,” said Golden.

The guidance is effective for public companies for periods after December 15, 2015. Private companies and nonprofits will follow the guidance for annual periods starting after December 15, 2016 (interim periods after December 15, 2017). The FASB said early adoption is permitted.