NEWS RELEASE 11/04/11
FASB Seeks Comments on Proposal for Improving Financial Reporting of
Consolidations
Norwalk, CT, November 4, 2011—The Financial
Accounting Standards Board (FASB) has issued a proposed
Accounting Standards Update intended to increase transparency
and consistency of financial reporting about consolidations. Comments on the
proposal are requested by January 17, 2012.
The proposed amendments in
this Update would affect all companies that are required to evaluate whether
they should consolidate another entity. It provides criteria for a reporting
entity to evaluate whether a decision maker is using its power as a principal or
an agent. These criteria would affect the evaluation whether an entity is a
variable interest entity and, if so, whether the reporting entity should
consolidate the entity being evaluated. The determination whether the decision
maker is using its power as a principal or an agent would be based on the rights
held by other parties, the compensation the decision maker is entitled in
accordance with the compensation agreement, and the decision maker´s exposure to
variability of returns from other interests that it holds in the entity.
The proposed Update also would amend the evaluation of kick-out and
participating rights held by noncontrolling shareholders in a consolidation
analysis. For example, the assessment of whether the participating rights of a
noncontrolling shareholder would overcome the presumption of control by the
majority shareholder would focus on whether such rights allow the noncontrolling
shareholders to participate in the activities that most significantly impact the
investee´s economic performance.
In addition, the proposed amendments
would change the requirements for determining whether a general partner controls
a limited partnership and, therefore, could affect reporting entities that are
involved with partnerships and similar entities. For example, the general
partner in a limited partnership would evaluate whether it uses its
decision-making authority in a principal or an agent capacity rather than
focusing on whether a simple majority of the limited partners hold substantive
kick-out rights or participating rights.
The amendments in this proposed
Update would rescind the indefinite deferral provided for an investment manager
and other similar entities by previous guidance.
The proposed Update is
available at www.fasb.org.
About
the Financial Accounting Standards Board
Since 1973, the
Financial Accounting Standards Board has been the designated organization in the
private sector for establishing standards of financial accounting and reporting.
Those standards govern the preparation of financial reports and are officially
recognized as authoritative by the Securities and Exchange Commission and the
American Institute of Certified Public Accountants. Such standards are essential
to the efficient functioning of the economy because investors, creditors,
auditors, and others rely on credible, transparent, and comparable financial
information. For more information about the FASB, visit our website at www.fasb.org.