3.2 Portion of a Subsidiary Not Attributable to the Parent
For a reporting entity to determine whether it should apply the guidance on the measurement and recognition of noncontrolling interests, the entity must first evaluate the scope of that guidance. Aside from providing explicit scope limitations for certain transactions that lead to decreases in ownership without an accompanying change in control (see Section 7.1.1), ASC 810-10 does not explicitly address the scope of its guidance on noncontrolling interests. Rather, ASC 810-10-20 defines a noncontrolling interest as the “portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent” and further states that a “noncontrolling interest is sometimes called a minority interest.”
45-15 The ownership interests in the subsidiary that are held by owners other than the parent is a noncontrolling interest. The noncontrolling interest in a subsidiary is part of the equity of the consolidated group.
45-16 The noncontrolling interest shall be reported in the consolidated statement of financial position within equity (net assets), separately from the parent’s equity (or net assets). That amount shall be clearly identified and labeled, for example, as noncontrolling interest in subsidiaries (see paragraph 810-10-55-4I). An entity with noncontrolling interests in more than one subsidiary may present those interests in aggregate in the consolidated financial statements. A not-for-profit entity shall report the effects of any donor-imposed restrictions, if any, in accordance with paragraph 958-810-45-1.
May also be referred to as the ultimate parent.
May also be referred to as the immediate parent of the second-tier subsidiary.
Second-tier subsidiary’s ultimate parent.
Second-tier subsidiary’s immediate parent.
Although an alternative presentation of a parent’s or affiliate’s noncontrolling interest may be used under specific facts and circumstances, the SEC staff may question that presentation. SEC registrants that are considering the use of an alternative presentation are encouraged to preclear it with the SEC staff before issuing their financial statements.
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.