Update to Consolidation Guidelines
On February 18, 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. The new standard makes targeted changes to the current consolidation guidance and ends a deferral available for investment companies. All entities will have a new way to evaluate consolidation; consolidation conclusions and disclosure may change, with partnerships and investment companies being the most affected. Entities also should consider the effects of the revised guidance as they enter into new transactions.
The ASU modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIE) or voting interest entities (VOE). Consolidation conclusions may change for entities that already are VIEs due to changes in how entities would analyze related-party relationships and fee arrangements. The standard relaxes existing criteria for determining when fees paid to a decision maker or service provider do not represent a variable interest by focusing on whether those fees are “at market.” The ASU eliminates both the consolidation model specific to limited partnerships and the current presumption that a general partner controls a limited partnership. Application of the new standard could result in some entities being deconsolidated or considered a VIE and subject to additional disclosures. Real estate, oil/gas and transportation entities may be more affected due to their use of limited partnerships. Entities consolidating for the first time under the new standard may need to update information systems and internal controls to meet the disclosure requirements.