Chapter 8 — Presentation and Disclosure | DART – Deloitte Accounting Research Tool

Chapter 8 — Presentation and Disclosure

8.1 Overview

ASC 810-10-45-15 states that the “ownership interests in the subsidiary that are held by owners other than the parent [are] a noncontrolling interest.” ASC 810-10 explains how to present and disclose those equity interests held by owners other than the parent.

ASC 810-10

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.

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.

50-1 Consolidated financial statements shall disclose the consolidation policy that is being followed. In most cases this can be made apparent by the headings or other information in the financial statements, but in other cases a note to financial statements is required.

50-1A A parent with one or more less-than-wholly-owned subsidiaries shall disclose all of the following for each reporting period:

Separately, on the face of the consolidated financial statements, both of the following:
1. The amounts of consolidated net income and consolidated comprehensive income
2. The related amounts of each attributable to the parent and the noncontrolling interest.
Either in the notes or on the face of the consolidated income statement, amounts attributable to the parent for any of the following, if reported in the consolidated financial statements:
1. Income from continuing operations
2. Discontinued operations
3. Subparagraph superseded by Accounting Standards Update No. 2015-01.
Either in the consolidated statement of changes in equity, if presented, or in the notes to consolidated financial statements, a reconciliation at the beginning and the end of the period of the carrying amount of total equity (net assets), equity (net assets) attributable to the parent, and equity (net assets) attributable to the noncontrolling interest. That reconciliation shall separately disclose all of the following:
1. Net income
2. Transactions with owners acting in their capacity as owners, showing separately contributions from and distributions to owners
3. Each component of other comprehensive income.
In notes to the consolidated financial statements, a separate schedule that shows the effects of any changes in a parent’s ownership interest in a subsidiary on the equity attributable to the parent. . . .

8.2 Balance Sheet Presentation

The general premise of a noncontrolling interest is balance sheet focused. Noncontrolling interests have the following two characteristics:

They are equity interests (i.e., they must be classified in equity, although they may include equity interests classified in temporary equity).
They represent the portion of a subsidiary’s equity that is not attributable to its parent.

The first characteristic is addressed by the requirement in ASC 810-10-45-16A that noncontrolling interests be limited to instruments classified in equity. The second characteristic is reflected in the presentation requirements of ASC 810-10-45-16, which prescribe that a reporting entity should clearly label and present the noncontrolling interest in the equity section of its balance sheet but separately from the parent’s equity.

Noncontrolling interests classified in temporary equity may subsequently become no longer redeemable. In such a case, classification in temporary equity would no longer be appropriate, and those noncontrolling interests should be reclassified into permanent equity on a prospective basis. See Chapter 9 for a discussion of considerations related to noncontrolling interests classified in temporary equity.

Example 8-1

Company D is the parent of Subsidiary E and Subsidiary F, both of which are capitalized with only common stock. Further assume the following:

At the beginning of 20X8, D owned 80 percent of E’s common shares and 65 percent of F’s common shares.
In 20X8, D sold 5 percent of E’s common shares to an unrelated third party for $5,000. The book value of E was $92,000 at the time of the sale.
At the beginning of 20X9, D owned 75 percent of E’s common shares and 65 percent of F’s common shares.
In 20X9, D purchased an additional 5 percent of F’s common shares from an unrelated third party for $4,100. The book value of F was $70,000 at the time of the purchase.
At the end of 20X9, D owned 75 percent of E’s common shares and 70 percent of F’s common shares.

The statement of financial condition below illustrates the presentation of the noncontrolling interest on D’s condensed balance sheet for 20X9 and 20X8.

8.3 Presentation of Income and Comprehensive Income

ASC 810-10-50-1A(a) explicitly requires a reporting entity with one or more less than wholly owned subsidiaries to separately present both income and comprehensive income on the face of the consolidated financial statements in the following three ways:

Consolidated net income and consolidated comprehensive income.
Net income and comprehensive income attributable to the parent.
Net income and comprehensive income attributable to the noncontrolling interest.

These three requirements reflect the basis for presenting the noncontrolling interest in the first place: equity interests are similar, and in the absence of an explanation to the contrary, it is assumed that the equity interests in net income and comprehensive income are each determined in a similar manner. By separately presenting the total amount of net income and comprehensive income and the amounts of each that are allocable to the parent and noncontrolling interest, the reporting entity ensures that the nuances of each individual interest (e.g., liquidation preferences or preferred returns) are transparently presented to users of the financial statements.

In addition to complying with these presentation requirements, a reporting entity may elect to present on the face of its consolidated income statement amounts attributable to the parent for income from continuing operations and discontinued operations. If the reporting entity elects not to present these items on the face of the consolidated income statements, it must separately disclose this information.

Example 8-2

Assume the same facts as in Example 8-1. Illustrated below is the presentation of the noncontrolling interest in Company D’s condensed statement of operations and statement of OCI.

8.4 Statement of Cash Flows Presentation

ASC 810-10 is silent on the effect of a noncontrolling interest on the statement of cash flows. The requirement to present net income and comprehensive income in a consolidated format, with accompanying separate allocations to the parent and noncontrolling interest (Section 8.3), may give rise to questions about whether the statement of cash flows should start with consolidated net income or with net income attributable to the parent.

While noncontrolling interests are typically thought of as representing a third party’s claim on the net assets of a consolidated subsidiary, unless a transaction is specifically with a noncontrolling interest holder, it is not possible to identify the portion of an individual asset (e.g., cash) that is attributable to a noncontrolling interest. Accordingly, the statement of cash flows does not require differentiation, on its face, between cash flows attributable to controlling and noncontrolling interests. Instead, consolidated net income is the starting point for both (1) a reporting entity’s statement of cash flows prepared under the indirect method and (2) a reporting entity’s reconciliation to net income in a statement of cash flows prepared under the direct method.

Distributions to noncontrolling interest holders (in their capacity as equity holders) are considered equity transactions and should be reflected as cash outflows for financing activities in accordance with ASC 230-10-45-15. Entities that determine that it is appropriate to classify the cash outflows associated with these distributions outside of financing activities in the statement of cash flows are encouraged to consult with their professional accounting advisers.

See Section 7.1.2.9 of this Roadmap and Section 6.2.2 of Deloitte’s Roadmap Statement of Cash Flows for additional discussion, including the classification of costs associated with purchasing or selling noncontrolling interests in a subsidiary.

8.5 Statement of Stockholders’ Equity Presentation

ASC 810-10’s financial reporting requirements for noncontrolling interests focus on highlighting (1) the similarity of subsidiary equity interests owned by both the parent and noncontrolling interest holders and (2) differences between the rights of holders of noncontrolling interests in a subsidiary and holders of the equity interests in the parent. ASC 810-10-50-1A(c) and (d) acknowledge that focus by requiring a reporting entity to include the following in the statement of stockholders’ equity:

c. Either in the consolidated statement of changes in equity, if presented, or in the notes to consolidated financial statements, a reconciliation at the beginning and the end of the period of the carrying amount of total equity (net assets), equity (net assets) attributable to the parent, and equity (net assets) attributable to the noncontrolling interest. That reconciliation shall separately disclose all of the following:

1. Net income

2. Transactions with owners acting in their capacity as owners, showing separately contributions from and distributions to owners

3. Each component of other comprehensive income.

d. In notes to the consolidated financial statements, a separate schedule that shows the effects of any changes in a parent’s ownership interest in a subsidiary on the equity attributable to the parent.

The reconciliation referred to in ASC 810-10-50-1A(c) must be presented in the consolidated statement of changes in equity if such a statement is presented. If that statement is not presented, the reconciliation must be presented in the notes to the consolidated financial statements.

Under SEC Regulation S-X, Rule 3-04, a public company is required to present separately from the statement of stockholders’ equity, in either a footnote or a separate financial statement, a rollforward of the changes in each caption of stockholders’ equity and noncontrolling interests presented in the balance sheets. Rule 3-04 further states that this analysis must be presented “for each period for which a statement of comprehensive income is required to be filed with all significant reconciling items described by appropriate captions with contributions from and distributions to owners shown separately.”

Example 8-3

Assume the same facts as in Example 8-1. Illustrated below is Company D’s consolidated statement of changes in equity for 20X8 and 20X9.

Unlike the reconciliation referred to in ASC 810-10-50-1A(c), which is not presented in the notes to the consolidated financial statements except in the absence of a consolidated statement of changes in equity, the separate schedule referred to in both ASC 810-10-50-1A(d) and Rule 3-04 must be presented in the notes to the consolidated financial statements when there are changes in a parent’s ownership interest in a subsidiary (see Chapter 7 for a discussion of how to account for such changes). Rule 3-04 also requires a public company to “state separately the adjustments to the balance at the beginning of the earliest period presented for items which were retroactively applied to periods prior to that period.” This separate schedule is required regardless of whether some of its contents overlap with information provided as a result of the equity rollforward disclosure requirement in ASC 810-10-50-1A(c) (e.g., net income attributable to the parent and the increase or decrease in the parent’s APIC as a result of transactions with the noncontrolling interest holder). See ASC 810-10-55-4M for an illustration of the separate schedule required under ASC 810-10-50-1A(d).

8.5.1 Interim Equity Reconciliations for SEC Registrants

The requirement for an equity reconciliation described above refers specifically to the beginning and end of a period. SEC Regulation S-X, Article 10, requires SEC registrants to provide an analysis of changes in each caption of stockholders’ equity and noncontrolling interests, which will need to be accompanied by dividends per share and in the aggregate for each class of shares. Generally, registrants present this equity reconciliation in a separate consolidated statement of changes in equity, although SEC Regulation S-X, Rule 3-04, also permits disclosure in the notes to the consolidated financial statements.

Note that the requirement to disclose changes in stockholders’ equity if such changes are considered material applies regardless of whether a registrant presents any noncontrolling interests in accordance with ASC 810.

Under the interim requirements in SEC Regulation S-X, Rules 8-03(a)(5) and 10-01(a)(7), registrants must analyze changes in stockholders’ equity, in the form of a reconciliation, for “the current and comparative year-to-date [interim] periods, with subtotals for each interim period.” Both rules refer to Rule 3-04 for presentation requirements, which, among other items, include a reconciliation that describes all significant reconciling items in each caption of stockholders’ equity and noncontrolling interests (if applicable).

As indicated in Section 8.5, ASC 810-10-50-1A(c) requires parent entities with one or more less than wholly owned subsidiaries to provide an equity reconciliation for each reporting period (i.e., on both an interim and an annual basis). Under U.S. GAAP, such a reconciliation is required for the period between the end of the preceding fiscal year and the most recent fiscal quarter as well as for the corresponding periods in the preceding fiscal year. However, as outlined above, Rule 10-01(a)(7) introduces additional requirements (e.g., presentation of quarter-to-date reconciliations for current and comparative periods) regardless of whether a registrant presents a noncontrolling interest.

The example below illustrates two financial statement presentation options for these interim disclosures.

Example 8-4

Company A is a calendar-year-end registrant that is filing its Form 10-Q for the third quarter of 20Y0. Further assume the following:

Company A has only one form of common stock outstanding and has declared dividends in each quarter.
Company A has a less than wholly owned subsidiary that is capitalized only with common stock; therefore, A presents a column for the noncontrolling interest in its subsidiary held by a third party.

For illustrative purposes, the reconciliations below are presented only for the applicable September 30, 20Y0, period(s); however, a similar presentation would be required for the comparative interim periods in 20X9 as well. We understand that a registrant may use either of the two presentation options below to satisfy this requirement for interim periods reported on Form 10-Q, although there may be other acceptable options.

Option 1

Company A may present two separate reconciliations: one showing the changes in stockholders’ equity for the year-to-date interim period ended September 30, 20Y0 (excluding quarterly subtotals); and a separate reconciliation showing the changes for the most recent quarter-to-date period ending September 30, 20Y0. The reconciliation could be shown in separate financial statements (as presented below), the notes to the financial statements, or a combination thereof.

Option 2

Company A may present a reconciliation in a single statement that shows the changes in stockholders’ equity for the year-to-date interim period ended September 30, 20Y0, which includes separate subtotals for each interim period. Alternatively, the single reconciliation could be shown in the notes to the financial statements.

8.5.2 Redeemable Noncontrolling Interests’ Impact on Disclosures and Reconciliations of Stockholders’ Equity

The SEC staff guidance on the classification and measurement of redeemable securities in ASC 480-10-S99-3A requires a reporting entity to classify certain redeemable noncontrolling interests in temporary equity. As explained in more detail in Section 9.3, a reporting entity must also apply the measurement guidance in both ASC 480-10-S99-3A and ASC 810-10 to such redeemable noncontrolling interests. ASC 480-10-S99-3A does not change the conclusion in ASC 810-10-45-15 and 45-16 that noncontrolling interests represent equity in the consolidated financial statements of the parent. Therefore, redeemable noncontrolling interests remain subject to the disclosure requirements of ASC 810-10-50-1A(c) and the following reconciliation requirements of SEC Regulation S-X:

Rule 3-04 for annual reporting purposes.
Rule 10-01(a)(7) for interim reporting purposes.

The disclosure requirements are applicable under U.S. GAAP even if such interests are classified in the temporary equity section of the reporting entity’s balance sheet.

The reconciliation of amounts pertaining to redeemable noncontrolling interests should include the impact of applying the initial and subsequent measurement guidance of ASC 480-10-S99-3A, which is discussed in more detail in Sections 9.4.2 and 9.4.3. Otherwise, the amounts required to be disclosed under ASC 810-10-50-1A(c) would not reconcile to the amounts recorded in the consolidated balance sheet. This conclusion is based on the guidance in Rule 3-04, which states, in part:

An analysis of the changes in each caption of stockholders’ equity and noncontrolling interests presented in the balance sheets . . . shall be presented in the form of a reconciliation of the beginning balance to the ending balance for each period for which a statement of comprehensive income is required to be filed with all significant reconciling items described by appropriate captions with contributions from and distributions to owners shown separately. [Emphasis added]

See additional guidance and illustrations in Section 9.5.

8.5.3 Comprehensive Income Requirement — Disclosure of Reallocations of AOCI Between the Parent and the Noncontrolling Interest

As noted in Section 7.1, ASC 810-10-45-23 requires that “[c]hanges in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary shall be accounted for as equity transactions.” As part of that equity transaction accounting, the parent is also required to reallocate the subsidiary’s AOCI between the parent and the noncontrolling interest (a separate component of stockholders’ equity). This is based on the requirement in ASC 810-10-45-24, which states:

A change in a parent’s ownership interest might occur in a subsidiary that has accumulated other comprehensive income. If that is the case, the carrying amount of accumulated other comprehensive income shall be adjusted to reflect the change in the ownership interest in the subsidiary through a corresponding charge or credit to equity attributable to the parent. Example 1, Case C (paragraph 810-10-55-4F) illustrates the application of this guidance.

An entity should not include in the separate schedule required under ASC 810-10-50-1A(d) the effect of changes in the parent’s consolidated AOCI that result from a reallocation of the subsidiary’s AOCI between the parent and the noncontrolling interest. That is, because reallocations of AOCI between the parent and the noncontrolling interest do not affect the income statement, entities are not required to disclose such reallocations in the separate schedule required under ASC 810-10-50-1A(d).

Example 8-5

Assume the following facts, which are the same as those in Examples 8-1, 8-2, and 8-3:

Company D is the parent of Subsidiary E and Subsidiary F, both of which are capitalized with only common stock.
At the beginning of 20X8, D owned 80 percent of E’s common shares and 65 percent of F’s common shares.
In 20X8, D sold 5 percent of E’s common shares to an unrelated third party for $5,000. The book value of E (on E’s books) was $92,000 at the time of the sale.
At the beginning of 20X9, D owned 75 percent of E’s common shares and 65 percent of F’s common shares.
In 20X9, D purchased an additional 5 percent of F’s common shares from an unrelated third party for $4,100. The book value of F (on F’s books) was $70,000 at the time of the purchase.
At the end of 20X9, D owned 75 percent of E’s common shares and 70 percent of F’s common shares.

The schedule below shows the effects of changes in D’s ownership interest in E and F for 20X8 and 20X9 in a manner consistent with the illustrative example in ASC 810-10-55-4M.

8.5.4 Presenting Effects of the Noncontrolling Interest in the AOCI Reclassification Adjustments Disclosure

ASC 220-10

Reporting Changes and Certain Income Tax Effects Within Accumulated Other Comprehensive Income

45-14A An entity shall present, either on the face of the financial statements or as a separate disclosure in the notes, the changes in the accumulated balances for each component of other comprehensive income included in that separate component of equity, as required in paragraph 220-10-45-14. In addition to the presentation of changes in accumulated balances, an entity shall present separately for each component of other comprehensive income, current period reclassifications out of accumulated other comprehensive income and other amounts of current-period other comprehensive income. Both before-tax and net-of-tax presentations are permitted provided the entity complies with the requirements in paragraph 220-10-45-12. Paragraph 220-10-55-15 illustrates the disclosure of changes in accumulated balances for components of other comprehensive income as a separate disclosure in the notes to financial statements. (See paragraph 220-10-50-5.)

45-17 An entity shall separately provide information about the effects on net income of significant amounts reclassified out of each component of accumulated other comprehensive income if those amounts all are required under other Topics to be reclassified to net income in their entirety in the same reporting period. An entity shall provide this information together, in one location, in either of the following ways:

On the face of the statement where net income is presented
As a separate disclosure in the notes to financial statements.

Paragraph 220-10-45-17A describes the information requirements for presentation on the face of the statements where net income is presented, and paragraph 220-10-50-6 describes the information requirements for disclosure in the notes to financial statements.

Entities are required to provide information about changes in AOCI as described in ASC 220-10-45-14A and ASC 220-10-45-17 through 45-17B. Specifically, ASC 220-10-45-14A requires entities to disaggregate the total change of each component of AOCI (e.g., unrealized gains or losses on available-for-sale securities or foreign currency items) and separately present amounts related to (1) reclassification adjustments and (2) current-period OCI on the face of the financial statements or in the footnotes. In addition, ASC 220-10-45-17 requires entities to present “information about the effects on net income of significant amounts reclassified out of each component of accumulated other comprehensive income if those amounts all are required under other Topics to be reclassified to net income in their entirety in the same reporting period.”

As discussed in Section 6.7, ASC 810-10-45-20 requires that “[n]et income or loss and comprehensive income or loss . . . shall be attributed to the parent and the noncontrolling interest.”

However, there is no guidance in U.S. GAAP on how or whether a parent entity should present the attribution of consolidated OCI between the parent and the noncontrolling interest when making the reclassification disclosures required by ASC 220-10-45-14A and ASC 220-10-45-17 through 45-17B.

Information about changes in AOCI (see ASC 220-10-45-14A) should reflect those amounts of OCI attributable to the parent since AOCI represents an accumulation of amounts for the parent only. Current-period OCI attributable to the noncontrolling interest in a subsidiary would be accumulated in the parent entity’s noncontrolling interest balance sheet line item and thus would not be included in AOCI. However, because ASC 220 is silent on the presentation of OCI information related to the noncontrolling interest in a subsidiary, the parent entity would not be precluded from separately disclosing information about components of OCI related to the noncontrolling interest.

ASC 220-10-45-17 requires an entity to present information about items reclassified out of AOCI, specifically the amount and income statement line item affected. The guidance does not address the presentation of information about significant amounts reclassified from an entity’s noncontrolling interest balance sheet line item to the income statement. However, an entity may elect to disclose information about the income statement effects of significant reclassification adjustments that include a noncontrolling interest portion. Doing so would be consistent with presenting consolidated net income (i.e., an entity view) and attributing an amount to the noncontrolling interest in accordance with ASC 810-10. If an entity presents income statement effects that include a noncontrolling interest amount, it may disclose the (1) aggregate noncontrolling interest amount related to all of the significant reclassification adjustments or (2) noncontrolling interest amount affecting each income statement line item. Regardless of how the noncontrolling interest is presented in this disclosure, if at all, the subtotal by component must agree with the reclassification adjustments presented in the changes in AOCI balances by component. Therefore, a reconciliation may be necessary.