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On February 18, 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-02
Consolidation (Topic 810): Amendments to the Consolidation Analysis (referred to herein as the ‘original ASU’). This original ASU stipulates that a single decision maker of a variable interest entity (VIE) is required to consider indirect economic interests in the entity held through related parties, on a proportionate basis, when determining whether it is the primary beneficiary of that VIE unless the single decision maker and its related parties are under common control. A primary beneficiary is the reporting entity that has a controlling financial interest in a VIE and, thus, consolidates the VIE.
If under common control, the single decision maker is required to consider the related parties’ total indirect interests in the entity to be the equivalent of direct interests. As such, this may require the single decision maker to consolidate a VIE even with little to no variable interests in the VIE. This may negatively impact the usefulness of the financial information reported by the single decision maker (i.e., the reporting entity).
In light of the impact of ASU No. 2015-02, on October 26, 2016, the FASB issued ASU No. 2016-17
Consolidation (Topic 810): Interests Held Through Related Parties That are Under Common Control (referred to herein as the ‘amended ASU’). This amended ASU revises the consolidation guidance in the original ASU on how indirect interests in the VIE held through common control related parties are included when determining whether the reporting entity is the primary beneficiary of that VIE. Specifically, a single decision maker must include such indirect interests on a proportionate basis consistent with the approach for indirect interests held through other non-common control related parties.
If the single decision maker of a VIE concludes that it is not the primary beneficiary, the reporting entity must evaluate whether it and one or more of its related parties under common control (collectively, the ‘group’) have the characteristics of a primary beneficiary. If so, then the party within the related party group that is most closely associated with the VIE is the primary beneficiary. Refer to Topic 810 for guidance on the characteristics of a primary beneficiary and the analysis for which party in the group is most closely associated.
The amendments are effective as follows:
Earlier adoption is allowed for all entities, including adoption in an interim period. If early adopting in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.
With respect to the original ASU:
To access the full script of ASU No. 2015-02 (i.e., the original ASU), click
here. To access the full script of ASU No. 2016-17 (i.e., the amended ASU), click
This communication contains a general overview of the topic and is current as of December 30, 2016. The application of the principles addressed will depend upon the particular facts and circumstances of each individual case. Accordingly, this publication is not a substitute for professional advice and we recommend that any decisions you take about the application or not of any of the information presented be made in consultation with a qualified professional, who can address any variance that may be required to reflect your circumstances. Please contact your local MNP representative for customized assistance with the application of this material. MNP LLP accepts no responsibility or liability for any loss related to any person's use of or reliance upon this material. © MNP LLP 2016. All rights reserved.
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