1.8 Redeemable Noncontrolling Interests

Nearly all of the guidance on accounting for redeemable noncontrolling interests resides in ASC 480-10-S99-3A and originated with the SEC staff’s views in EITF Topic D-98. Accordingly, this guidance must be applied by all SEC registrants. While reporting entities other than SEC registrants are not subject to the guidance in ASC 480-10-S99-3A, they may elect to apply it.

When applied, ASC 480-10-S99-3A is essentially an “overlay” that is applied after the application of ASC 810-10. That is, a reporting entity must apply the provisions of ASC 810-10, including the guidance on attributing subsidiary income to controlling and noncontrolling interests, before applying the provisions of ASC 480-10-S99-3A, which primarily focus on subsequent measurement and balance sheet presentation issues that arise from the existence of a redemption feature (see Sections 9.3 and 9.4.3.1).

A redeemable noncontrolling interest within the scope of ASC 480-10-S99-3A is classified outside of permanent equity, in a section of the balance sheet typically referred to as “temporary” equity (see Section 9.4.1). A redeemable noncontrolling interest’s initial measurement is typically equal to its fair value (see Section 9.4.2). Subsequent measurement depends on multiple factors, including whether:

• The redeemable noncontrolling interest is redeemable at fair value or at other than fair value (see Sections 9.4.4.1 through 9.4.4.2.1.3).
• The instrument is currently redeemable, or it is probable that the instrument will become redeemable (see Sections 9.4.3.2 and 9.4.3.3).

The impact of subsequent measurement adjustments on the parent’s consolidated income statement and EPS computation will be driven by the unique combination of all of the following:

• The redeemable noncontrolling interest’s form — specifically, common-share versus preferred-share (see Sections 9.4 and 9.4.4).
• The instrument’s redemption price (see Sections 9.2 and 9.4).
• The reporting entity’s policy election for classifying the offsetting entry for measurement adjustments required under ASC 480-10-S99-3A (see Section 9.4.4).

While much of ASC 480-10-S99-3A focuses on the accounting for a redeemable noncontrolling interest from the time of issuance, the actual redemption of a common-share or preferred-share redeemable noncontrolling interest is accounted for as an equity transaction. In cases involving the redemption of a preferred-share redeemable noncontrolling interest, if the price at which the redeemable noncontrolling interest is ultimately redeemed differs from the price stated in the redemption feature, an additional EPS impact may result (see Sections 9.4.5 and 9.4.5.2).

If a redemption feature expires unexercised, the carrying amount of the noncontrolling interest is reclassified into permanent equity of the parent, and reversal of prior measurement adjustments is not permitted (see Section 9.4.6).

As discussed in Sections 8.5 and 8.5.1, ASC 810-10 requires certain entities to present reconciliations of changes in stockholders’ equity that detail changes attributable to the parent and noncontrolling interest holders. Redeemable noncontrolling interests remain subject to the disclosure and reconciliation requirements of ASC 810-10-50-1A(c) and SEC Regulation S-X, Rule 3-04, even if such interests are classified in the temporary equity section of the reporting entity’s balance sheet (see Section 9.5.1).

Section 9.5 discusses additional considerations related to the presentation of temporary equity in the reconciliation of changes in stockholders’ equity, as well as the effect of changes in a parent’s ownership interest in subsidiaries (without an accompanying change in control) on redeemable noncontrolling interests.