Chapter 9 — Redeemable Noncontrolling Interests

9.5 Disclosures Related to Redeemable Noncontrolling Interests

As discussed in Connecting the Dots in Section 9.3, the guidance in ASC 480-10-S99-3A applies to all SEC registrants and can also be elected by entities that are not SEC registrants. The disclosure requirements outlined below are applicable to all entities applying the guidance in ASC 480-10-S99-3A.

9.5.1 Equity Reconciliation Disclosures Related to Redeemable Noncontrolling Interests

ASC 810-10

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

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:

Net income
Transactions with owners acting in their capacity as owners, showing separately contributions from and distributions to owners
Each component of other comprehensive income. . . .

SEC Regulation S-X, Rule 3-04

Changes in stockholders’ equity and noncontrolling interests.

An analysis of the changes in each caption of stockholders’ equity and noncontrolling interests presented in the balance sheets shall be given in a note or separate statement. This analysis 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. Also, 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. With respect to any dividends, state the amount per share and in the aggregate for each class of shares. Provide a separate schedule in the notes to the financial statements that shows the effects of any changes in the registrant’s ownership interest in a subsidiary on the equity attributable to the registrant.

As discussed in Section 8.5, ASC 810-10-50-1A(c) requires a parent entity with one or more subsidiaries that are less than wholly owned to present a reconciliation of the beginning and ending balances of (1) total equity, (2) equity attributable to the parent, and (3) equity attributable to the noncontrolling interest for each reporting period. SEC Regulation S-X, Rule 3-04, requires SEC registrants to provide a similar reconciliation “for each period for which an income statement is required to be filed.” In their interim filings, SEC registrants with noncontrolling interests should provide, as required under ASC 810-10-50-1A(c), equity reconciliations for the period between the end of the preceding fiscal year and the end of the most recent fiscal quarter, as well as the corresponding periods of the preceding fiscal year.

Because 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, redeemable noncontrolling interests remain subject to the disclosure and reconciliation requirements of ASC 810-10-50-1A(c) and Rule 3-04 even if such interests are classified in the temporary equity section of the reporting entity’s balance sheet.

An entity can satisfy the equity reconciliation disclosure requirements of ASC 810-10-50-1A(c) and Rule 3-04 by applying either of the following disclosure alternatives:

Disclosure Alternative 1 — Provide a separate consolidated statement of changes in stockholders’ equity. There are several acceptable approaches for preparing the separate consolidated statement of changes in stockholders’ equity. Two acceptable approaches are illustrated in Example 9-10.
Disclosure Alternative 2 — Provide footnote disclosure.

When reconciling redeemable noncontrolling interests, entities should consider the following:

Common-share redeemable noncontrolling interests — Consideration should be given to providing separate reconciliations (e.g., separate columns in a consolidated statement of changes in stockholders’ equity) when a parent entity has different types of common-share redeemable noncontrolling interests (e.g., noncontrolling interests redeemable at fair value and noncontrolling interests redeemable at other than fair value).
Preferred-share redeemable noncontrolling interests — In accordance with ASR 268 (as incorporated into ASC 480-10-S99-1), the reconciliation of changes in preferred-share redeemable noncontrolling interest should be presented in a footnote separately from the reconciliation of other equity balances. It would not be appropriate to include the reconciliation of a redeemable preferred security within a consolidated statement of changes in stockholders’ equity.
Totals that include redeemable noncontrolling interests — The SEC staff has indicated that on the basis of ASR 268, it would object to a registrant’s presentation in an equity reconciliation of any total that combines the carrying amount of redeemable equity securities classified in temporary equity (including redeemable noncontrolling interests) with total permanent equity. In addition, the SEC staff would object to the presentation of any such total irrespective of the form of the noncontrolling interest (i.e., common-share or preferred-share) and regardless of whether the equity reconciliation is presented in a separate statement of changes in stockholders’ equity or in a footnote.

Example 9-10

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

Company D, an SEC registrant, is the parent of Subsidiaries E and F, which are both capitalized with only common stock.
Other than the noncontrolling interests held by third parties, all equity interests issued by E and F are held by D.
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.

Also assume the following additional facts:

Company D is the parent of Subsidiary G, which is capitalized with only common stock. However, G has also issued a common-share redeemable noncontrolling interest to a third party. This interest is classified in temporary equity in accordance with ASC 480-10-S99-3A.
Other than the redeemable noncontrolling interest held by the third party, all equity interests issued by G are held by D.
At the beginning of 20X8, D owned 80 percent of G’s common stock and consolidated G. The remaining 20 percent of G’s common stock was owned by the third party and was redeemable outside of D’s control. Therefore, this remaining 20 percent was classified in temporary equity. Company D applied the equity classification — entire adjustment method as defined in Section 9.4.4.2.
As of December 31, 20X8, the redeemable noncontrolling interest in G was recorded on D’s consolidated balance sheet in the amount of $25,700, which exceeds the interest’s ASC 810-10 carrying amount by $2,000. This excess represents the cumulative amount of ASC 480-10 measurement adjustments that D recorded under the equity classification — entire adjustment method through December 31, 20X8.
On January 2, 20X9, D repurchased 50 percent of the redeemable noncontrolling interest in G for $13,350. This repurchase price differs from the noncontrolling interest’s stated redemption price and also exceeds the amount recorded for the noncontrolling interest on D’s December 31, 20X8, balance sheet (i.e., the sum of the interest’s $11,850 ASC 810-10 carrying amount and the cumulative $1,000 ASC 480-10 measurement adjustment recorded for this repurchased portion of the redeemable noncontrolling interest for periods through December 31, 20X8).
For the period ending December 31, 20X9, D recorded a $400 attribution adjustment to the redeemable noncontrolling interest’s ASC 810-10 carrying amount and a $1,150 ASC 480-10 measurement adjustment to the redeemable noncontrolling interest in G outstanding for the entire year (i.e., the remaining 50 percent that was not repurchased). After these adjustments were made, the redeemable noncontrolling interest was recorded on D’s consolidated balance sheet in the amount of $14,400, which exceeds the interest’s ASC 810-10 carrying amount by $2,150.

The parties’ respective interests are illustrated in the diagram below.

As of January 1, 20X8:

Disclosure Alternative 1 — Separate Consolidated Statement of Changes in Stockholders’ Equity

Company D may comply with the equity reconciliation disclosure requirements of ASC 810-10-50-1A(c) and SEC Regulation S-X, Rule 3-04, by presenting a separate consolidated statement of changes in stockholders’ equity. The illustrative disclosures below have been adapted from ASC 810-10-55-4L. Although these illustrations include an equity reconciliation for only one period, parent entities are required to present comparative equity reconciliations for the appropriate prior period(s). Also, while ASC 810-10-50-1A(c) requires the inclusion of certain items within the equity reconciliation, it stops short of prescribing a specific format. Thus, other formats may be acceptable.

The two approaches described below (“Approach 1” and “Approach 2”) are acceptable for D to use when presenting its consolidated statement of changes in stockholders’ equity. In these approaches, we have assumed for simplicity that (1) the beginning equity balances are the same as in Example 8-3 and (2) G did not have cash flow hedges or foreign currency translation adjustments.

Approach 1

Under Approach 1, D would present a consolidated statement of changes in stockholders’ equity that includes a separate column for the redeemable noncontrolling interests (see table below).7 Company D should not include totals that combine the beginning or ending balances of the redeemable noncontrolling interests and total permanent stockholders’ equity.

Approach 2

Under Approach 2, D would present a consolidated statement of changes in stockholders’ equity that does not include a column for the redeemable noncontrolling interests (see the table below).

In the manner illustrated below, D should then present a reconciliation of the changes in the redeemable noncontrolling interests either (1) at the bottom of the consolidated statement of changes in stockholders’ equity8 or (2) in the notes to the consolidated financial statements.

Disclosure Alternative 2 — Footnote Disclosure of Changes in Stockholders’ Equity

Company D may comply with the equity reconciliation disclosure requirements of ASC 810-10-50-1A(c) and SEC Regulation S-X, Rule 3-04, by presenting a footnote that discloses a reconciliation of equity balances. In a manner similar to the two approaches illustrated for Disclosure Alternative 1 above, D should include in its footnote disclosure a separate column or table to show the changes in the carrying amount of the redeemable noncontrolling interests.9 In its reconciliation of equity balances, D should not include totals that combine the beginning or ending balances of the redeemable noncontrolling interests and total permanent stockholders’ equity.

Connecting the Dots

Although this Roadmap section addresses only the reconciliation of redeemable noncontrolling interests, the same considerations apply to redeemable equity securities issued by the parent.

9.5.2 Effect of Changes in Parent’s Ownership Interest in Subsidiaries (Without an Accompanying Change in Control) on Redeemable Noncontrolling Interests

ASC 810-10

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

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. . . .

As discussed in Sections 9.4.2 and 9.4.3, the guidance in ASC 480-10-S99-3A may require a reporting entity to make ASC 480 measurement adjustments to the carrying amount of redeemable noncontrolling interests each reporting period. ASC 810-10-50-1A(d) requires reporting entities to disclose a separate schedule for any period in which the parent’s ownership interest in a subsidiary changes. The interaction between ASC 810-10-50-1A(d) and ASC 480-10-S99-3A presents an interesting question: Should the amounts disclosed in the separate schedule required by ASC 810-10-50-1A(d) include the impact of applying the measurement guidance in ASC 480-10-S99-3A to redeemable noncontrolling interests?

We believe that there are two acceptable methods for complying with these requirements. While a reporting entity may apply one method to one type of redeemable noncontrolling interest (e.g., common-share noncontrolling interests redeemable at fair value) and the other method to a second type of redeemable noncontrolling interest (e.g., common-share noncontrolling interests redeemable at formula value), the reporting entity should consistently apply the same method to similar redeemable noncontrolling interests. The reporting entity should also provide adequate disclosures in the notes to the consolidated financial statements that specify (1) its basis for the presentation of the separate schedule and (2) how the amounts included in the separate schedule reconcile to the consolidated balance sheet and the equity reconciliation required by ASC 810-10-50-1A(c) (as described in Section 9.5.1).

The two disclosure methods are as follows:

Disclosure Method 1 — A reporting entity should exclude the adjustments made as a result of applying the measurement guidance in ASC 480-10-S99-3A from the amounts included in the separate schedule required by ASC 810-10-50-1A(d). The separate schedule includes only the impact of actual repurchases or issuances of noncontrolling interests and is prepared as though ASC 480-10-S99-3A did not apply. Consequently, although the consolidated statement of changes in stockholders’ equity will reflect the reversal of previous adjustments the entity recorded as a result of applying this measurement guidance, for purposes of preparing the separate schedule required by ASC 810-10-50-1A(d), the previous adjustments should be disregarded so that the impact of purchases or sales of noncontrolling interests can be isolated. See Example 9-11.
Supporters of Disclosure Method 1 believe that the separate schedule is required only when there is a change in a parent’s ownership interest in a consolidated subsidiary (i.e., when an actual repurchase occurs).
Disclosure Method 2 — A reporting entity should include the adjustments made as a result of applying the measurement guidance in ASC 480-10-S99-3A in the amounts included in the separate schedule required by ASC 810-10-50-1A(d) (e.g., as a separate line item for such adjustments).10 The manner in which the ASC 480 measurement adjustments affect the amounts in this separate schedule will depend on the entity’s accounting policy for reflecting actual redemptions of redeemable noncontrolling interests, as illustrated in Examples 9-12 and 9-13.
Supporters of Disclosure Method 2 believe that (1) ASC 810-10-50-1A(d) requires disclosure of how the parent’s equity is affected by noncontrolling interests and (2) this disclosure should be presented in a manner consistent with the amounts reported in the consolidated balance sheet.

Note that ASC 810-10-50-1A(d) does not require an entity to use a specific format to meet its disclosure objective. The illustrative examples below are based on the format used in ASC 810-10-55-4M. Other formats may also be acceptable.

Example 9-11

Disclosure Method 1 — ASC 480 Measurement Adjustments Excluded

Assume the same facts as in Example 9-10.

Company D would present the separate schedule required by ASC 810-10-50-1A(d) for the year ended December 31, 20X9, as follows:11

Example 9-12

Disclosure Method 2 — ASC 480 Measurement Adjustments Included (Reversing Entry Made)

Assume the same facts as in the example above, except that Company D elects to apply Disclosure Method 2. In addition, assume that D’s accounting policy is to reverse the ASC 480 measurement adjustments (associated with any repurchased shares) previously recorded in retained earnings in prior periods before recording its repurchase of redeemable noncontrolling interests in the current period (i.e., D treats the repurchase as a transfer between retained earnings and APIC in the manner described in Section 9.4.5.1). Note also that because the common-share noncontrolling interests are redeemable at fair value, ASC 480 measurement adjustments previously recorded in retained earnings were not included in D’s calculation of EPS. Consequently, the limitations on the reversal entries that are discussed in Section 9.4.5.1 do not apply. Company D records the following reversing entry as of December 31, 20X8:

Company D would present the separate schedule required by ASC 810-10-50-1A(d) for the year ended December 31, 20X9, as follows:12

Example 9-13

Disclosure Method 2 — ASC 480 Measurement Adjustments Included (No Reversing Entry Made)

Assume the same facts as in Example 9-11, except that Company D elects Disclosure Method 2. In addition, assume that D’s accounting policy is not to reverse the ASC 480 measurement adjustments (associated with any repurchased shares) previously recorded in retained earnings in prior periods before recording its repurchase of redeemable noncontrolling interests in the current period (i.e., D does not treat the repurchase as a transfer between retained earnings and APIC in the manner described in Section 9.4.5.1).

Company D would present the separate schedule required by ASC 810-10-50-1A(d) for the year ended December 31, 20X9, as follows:13

Footnotes

As previously discussed, this approach would not be acceptable if the redeemable noncontrolling interests were in the form of preferred stock. In accordance with ASR 268, the reconciliation of a redeemable preferred security should be provided in a separate note to the consolidated financial statements.

See footnote 7.

When the equity reconciliation is included in a footnote, any redeemable noncontrolling interest in the form of preferred stock should be shown separately from the reconciliation of all other equity balances in accordance with SEC Regulation S-X, Rule 5-02(31).

Reporting entities applying one of the income classification adjustment methods described in Section 9.4.4.2 will have already included at least a portion of such adjustment in net income attributable to the parent. In these situations, there is no need to include the portion of the ASC 480 measurement adjustment included in net income attributable to the parent as an additional amount in the schedule. To do so would result in double counting.

Note that although D must provide this reconciliation on an interim and annual basis for all periods in which it presents a consolidated statement of income, only one year is shown.

See footnote 11.

Confidential and Proprietary — for Use Solely by Authorized Personnel

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.