3.1 Introduction
ASC 810-10
15-3 All reporting entities shall apply the guidance in the Consolidation Topic to determine whether and how to consolidate another entity and apply the applicable Subsection as follows:
- If the reporting entity has an interest in an entity, it must determine whether that entity is within the scope of the Variable Interest Entities Subsections in accordance with paragraph 810-10-15-14. If that entity is within the scope of the Variable Interest Entities Subsections, the reporting entity should first apply the guidance in those Subsections. Paragraph 810-10-15-17 provides specific exceptions to applying the guidance in the Variable Interest Entities Subsections.
- If the reporting entity has an interest in an entity that is not within the scope of the Variable Interest Entities Subsections and is not within the scope of the Subsections mentioned in paragraph 810-10-15-3(c), the reporting entity should use only the guidance in the General Subsections to determine whether that interest constitutes a controlling financial interest.
- If the reporting entity has a contractual management relationship with another entity that is not within the scope of the Variable Interest Entities Subsections, the reporting entity should use the guidance in the Consolidation of Entities Controlled by Contract Subsections to determine whether the arrangement constitutes a controlling financial interest.
15-4 All legal entities are subject to this Topic’s evaluation guidance for consolidation by a reporting entity,
with specific qualifications and exceptions noted below.
15-5 The application of this Topic by not-for-profit entities (NFPs) as defined in Topic 958 is subject to
additional guidance in Subtopic 958-810.
15-6 The guidance in this Topic applies to all reporting entities, with specific qualifications and exceptions
noted below.
The determination of whether a legal entity should be consolidated by a reporting entity begins with an evaluation of
whether the legal entity is subject to a general exception to the consolidation
requirements in ASC 810-10. If a legal entity is not subject to a general exception,
the evaluation should focus on whether the legal entity is subject to an exception
to the VIE model. The
voting interest
entity model is applied only if it is determined that the legal
entity qualifies for a VIE scope exception, the legal entity is not a VIE, or the
legal entity is not subject to the guidance on consolidation of entities controlled
by contract.1 Evaluating whether a legal entity qualifies for a scope exception or is
subject to the VIE model is therefore a critical step in the determination of which
consolidation model to apply (i.e., the VIE model or the voting interest entity
model; see Section 1.1 for a summary of the
consolidation model objectives).
This chapter provides an overview of considerations related to the initial scope determination and focuses on the general exceptions to the consolidation requirements as well as the VIE scope exceptions. Chapter 5 provides guidance on whether a legal entity is subject to the VIE model (i.e., the legal entity is a VIE).
The VIE model applies to all legal entities that do not qualify for
either a general exception to the consolidation requirements or an exception to the
application of the VIE model. Accordingly, application of the VIE model is not
limited to SPEs. Rather, reporting entities must evaluate all legal entities in
which they have an interest to determine whether the legal entities are subject to
the VIE subsections. If a scope exception does not apply to a legal entity (SPE or
otherwise), reporting entities would be required to evaluate whether the legal
entity meets the definition of a VIE. Only if the legal entity qualifies for an
exception to the application of the VIE subsections, or does not meet the definition
of a VIE, would consolidation of the legal entity be evaluated under the voting
interest entity model.
Footnotes
1
While ASC 810-10 primarily focuses on the voting interest
entity model and the VIE model, it also discusses the consolidation of
entities that are controlled by contract. Although the guidance in the ASC
810-10 subsections on the consolidation of contract-controlled entities
applies to all entities (except those that are deemed VIEs), the context of
that guidance is physician practice management entities. See Section D.3.4 for a
discussion of the contract-controlled entity model.