2.16 Noncontrolling Interests | DART – Deloitte Accounting Research Tool

Examples of SEC Comments

[T]ell us how you attribute interests in [Company A] to noncontrolling interest.
Tell us how you determined the value of the non-controlling interest.
You disclose that your non-controlling interests are redeemable at your option subject to their terms and conditions. Please provide for us your analysis supporting classification of the non-controlling interests as temporary equity when ASC 480-10-S99-3A.2 includes the concept of redemption not being solely within the control of the issuer. Refer to specific guidance you rely upon in your response.
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

Roadmap, Noncontrolling Interests