2.16 Noncontrolling Interests
Examples of SEC Comments
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We note your capital structure includes convertible redeemable noncontrolling interests initially measured and recorded at fair value . . . . [P]lease further describe how the Company considered and applied the guidance under ASC 480 and the SEC’s temporary equity guidance under ASC 480-10-S99-3A including paragraphs 14 through 16 related to its evaluation of the regular and special redemption rights included in such [noncontrolling interests].
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[T]ell us how you attribute interests in [Company A] to noncontrolling interest.
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Tell us how you determined the value of the non-controlling interest.
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Please provide us with a detailed analysis of the balance sheet classification of the noncontrolling interest associated with the mandatory open offer . . . . Address how you considered the guidance in ASC 810-10-45-17, ASC 480-10-30-1, and ASC 480-10-55-54. Also tell us what consideration you gave to the classification guidance in ASC 480-10-S99-3A.
SEC staff comments related to noncontrolling interests have focused on the allocation of net income (loss) to the noncontrolling interest holder and the parent. Accordingly, a registrant may be asked to provide the SEC staff with detailed information about how the registrant determined the allocation, particularly when the allocation is disproportionate to the noncontrolling interest holder’s investment.
The SEC staff has commented on registrants’ accounting for redeemable noncontrolling interests since SEC rules still prohibit registrants from including redeemable equity in any caption titled “total equity.” ASC 480-10-S99-3A(2) indicates that equity instruments are required to be classified outside of permanent equity if they are redeemable for cash or other assets in one of the following ways:
- “[A]t a fixed or determinable price on a fixed or determinable date.”
- “[A]t the option of the holder.”
- “[U]pon the occurrence of an event that is not solely within the control of the issuer.”
Thus, the SEC staff has indicated that “registrants with redeemable
noncontrolling interests, redeemable preferred stock or other redeemable equity
classified outside permanent equity should not include these items in any total or
subtotal caption titled ‘total equity.’” Further, changing “the caption in the
statement of changes in shareholders’ equity [from] ‘total equity’ to ‘total’ does
not make the inclusion of redeemable equity acceptable.”9
For additional information about classification of redeemable securities, see Section 2.4.3.
Other Deloitte Resources
Footnotes
9
Quoted text is from the highlights of the June 2009 CAQ SEC
Regulations Committee joint meeting with the SEC staff.