45-16A Only either of the following can be a noncontrolling interest in the consolidated financial statements:
A financial instrument (or an embedded feature) issued by a subsidiary that is classified as equity in the subsidiary’s financial statements
A financial instrument (or an embedded feature) issued by a parent or a subsidiary for which the payoff to the counterparty is based, in whole or in part, on the stock of a consolidated subsidiary, that is considered indexed to the entity’s own stock in the consolidated financial statements of the parent and that is classified as equity.
45-17 A financial instrument issued by a subsidiary that is classified as a liability in the subsidiary’s financial statements based on the guidance in other Subtopics is not a noncontrolling interest because it is not an ownership interest. For example, Topic 480 provides guidance for classifying certain financial instruments issued by a subsidiary.
45-17A An equity-classified instrument (including an embedded feature that is separately recorded in equity under applicable GAAP) within the scope of the guidance in paragraph 815-40-15-5C shall be presented as a component of noncontrolling interest in the consolidated financial statements whether the instrument was entered into by the parent or the subsidiary. However, if such an equity-classified instrument was entered into by the parent and expires unexercised, the carrying amount of the instrument shall be reclassified from the noncontrolling interest to the controlling interest.
The mandatorily redeemable preferred stock held by B does not qualify for classification as a noncontrolling interest because it is classified as a liability under ASC 480 in Z’s stand-alone financial statements.
The debt obligations do not qualify for classification as a noncontrolling interest because they are classified as a liability under ASC 470 in Z’s stand-alone financial statements.
At the December 2006 AICPA Conference on Current SEC and PCAOB Developments, Joseph Ucuzoglu, then a professional accounting fellow in the SEC’s Office of the Chief Accountant, delivered a speech that we believe would be appropriate for an entity to consider when determining whether other equity interests have the characteristics of a substantive class of equity. For a relevant excerpt of this speech, see Section 2.6 of Deloitte’s Roadmap Share-Based Payment Awards.