Tentative Board decisions are provided for those interested in following
the Board’s deliberations. All of the reported decisions are tentative and may
be changed at future Board meetings.
May 6, 2014 FASB Board Meeting
Consolidation:
Principal versus Agent Analysis. The Board continued redeliberating the
November 2011 proposed FASB Accounting Standards Update, Consolidation
(Topic 810): Principal versus Agent Analysis.
The staff presented a
summary of stakeholder outreach conducted to evaluate the operability and
consequences (including unintended consequences) of tentative decisions made on
March 12, 2014, about the applicability of the related party tie breaker test
for variable interest entities (VIEs).
After considering the staff
analysis of that input, the Board decided to further modify the related party
guidance for VIEs. Specifically, once it has been determined that a decision
maker (that is, a single variable interest holder with the power to direct the
activities of a VIE that most significantly impact the VIE’s economic
performance) is considered to be acting in an agency role after performing the
primary beneficiary (PB) determination and has considered its direct and
indirect interests (see previous tentative Board decision from March 12, 2014,
for further discussion on indirect interests), there should not be a related
party tie breaker test performed by any party in the related party group.
Because the decision maker is an agent, the related party, as a group, should
not be considered the PB.
However, if related parties are under common
control in the related party group (and those related parties under common
control have the characteristics of a PB), the related party tie breaker test
must be performed for those parties under common control. The decision maker
would not retain its agency role in this case.
Additionally, in instances
in which substantially all of the activities of the VIE are conducted on behalf
of a single variable interest holder in a related party group (in which
the group has the characteristics of a PB), that single variable interest holder
for which substantially all of the activities of the VIE are conducted on its
behalf would be the PB and would consolidate the VIE. The evaluation of
substantially all would be qualitative, considering all relevant facts and
circumstances.
In instances in which (1) there are entities under common
control that have the characteristics of a PB and (2) substantially all of the
activities of the VIE are conducted on behalf of a single variable
interest holder in the related party group but not in the common control group,
the related party tie breaker test would be performed by the entities under
common control.