Chapter 9 — Redeemable Noncontrolling Interests

9.1 Introduction

Common and preferred shares of a consolidated subsidiary are sometimes subject to redemption rights held by the noncontrolling shareholder. The combination of a noncontrolling interest and a redemption feature (e.g., a put option) may result in what is referred to as a redeemable noncontrolling interest. Redemption features can be important to the noncontrolling interest holder because they enable the holder to liquidate its investment when there is no readily accessible market. As described in Section 3.3, noncontrolling interest classification is limited to instruments that are appropriately classified in the equity section of the reporting entity’s balance sheet. Because classification of equity instruments in the asset, liability, or equity section of a reporting entity’s balance sheet is outside the scope of this publication, we have presumed in this chapter that equity classification of a redeemable noncontrolling interest has already been determined to be appropriate.1

Accounting for redeemable noncontrolling interests is one of the more complex topics in U.S. GAAP, in part because the reporting entity’s accounting depends on the unique combination of the following:

The form of the redeemable noncontrolling interest (common-share vs. preferred-share).
Whether the redemption price is at fair value or other than fair value (see Sections 9.4.4.1 through 9.4.4.2.1.3).
The reporting entity’s policy for determining the amount of the adjustment to be recorded each period (see Sections 9.4.3 through 9.4.3.4).
The reporting entity’s policy for classifying the offsetting entry to such adjustments (see Sections 9.4.4 through 9.4.4.2.1.3).
When a common-share redeemable noncontrolling interest is redeemable at other than fair value, the reporting entity’s policy for incorporating such adjustments into its EPS computation (see Sections 9.4.4.2 through 9.4.4.2.1.3).

The remainder of this chapter summarizes the key financial reporting and EPS considerations related to redeemable noncontrolling interests.

Footnotes

See Deloitte’s Roadmap Distinguishing Liabilities From Equity, which provides extensive interpretive guidance on the appropriate classification of instruments within or outside of the equity section of a reporting entity’s balance sheet.

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This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.