ASU 2015-02 Provides Improved Consolidation Standards
Gisèle Couturier, Audit Senior Manager
On February 18, 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. This update was issued in an effort to improve consolidation guidance as well as increase transparency and consistency of financial reporting.
With consideration given to stakeholder and preparer concerns, the FASB tackled this project to better achieve the underlying purpose of financial reporting: to provide useful information to users of the financial statements for proper analysis and decision making. Stakeholders had expressed concerns with the existing consolidation guidance, noting that at times, consolidation was not providing relevant or comparable information. To obtain meaningful information required for analysis, stakeholders often found it necessary to request deconsolidated financial statements from the reporting organizations.
The FASB was also interested in reducing the burden on the preparers of financial statements. Under current Accounting Standards, a reporting organization is required to qualitatively analyze its relationship to certain legal entities, utilizing a variety of criteria and models to determine whether the legal entity should be consolidated. The ASU will simplify the criteria, decrease the number of models available, and ultimately simplify application of the guidance. In addition, it is expected that requests for deconsolidated statements will be reduced.
Highlights of ASU 2015-02
- The consolidation model specific to limited partnerships is eliminated, and the requirement for a general partner to consolidate a limited partnership no longer exists, thereby reducing the number of voting interest consolidation models from two to one.
- A greater emphasis is placed on the risk of loss with regard to the evaluation of Variable Interest Entities (VIEs); consolidation is not driven by majority voting rights.
- Certain legal entities may no longer be required to be consolidated on the basis of fee arrangements.
- The update changes how related party relationships affect the consolidation of VIEs, thus reducing the application of related-party guidance.
- It eliminates indefinite deferral for certain investment funds.
- Certain money market funds will no longer be subject to the consolidation guidance.
- GAAP is now one step closer to International Financial Reporting Standards (IFRS), which has only one consolidation model based on the principle of effective control.
The ASU is effective for all reporting entities that are required to assess the consolidation of additional entities: public companies, private companies, and not-for-profit organizations. Industries that are expected to be affected by the ASU are those that most commonly utilize limited partnerships and VIEs. These include investment management, banking, technology, professional services, and manufacturing, among others.
For public companies, the ASU will be effective for periods beginning after December 15, 2015. For private companies and not-for-profit organizations, the ASU will be effective for annual periods beginning after December 15, 2016; and for interim periods, beginning after December 15, 2017. Early adoption is permitted.
More information pertaining to ASU No. 2015-02 can be found on the FASB website. If you would like to discuss further, please call your BNN advisor at 1.800.244.7444.
Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.