On January 12, 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-02, Not-for-Profit Entities—Consolidation (Subtopic 958-810): Clarifying When a Not-for-Profit Entity That Is a General Partner or a Limited Partner Should Consolidate a For-Profit Limited Partnership or Similar Entity. The standard affirms current practice for not-for-profit (NFP) entities applying consolidation accounting to for-profit limited partnerships—most commonly when an NFP serves as a general partner for investments in a qualified affordable housing project established as a limited partnership.
The February 2015 issuance of ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, made targeted changes to consolidation guidance; however, ASU 2015-02 moved or eliminated portions of the guidance that NFPs normally would reference, causing confusion on how to analyze consolidation decisions. ASU 2017-02 updates the language in Subtopic 958-810, Not-for-Profit Entities—Consolidation, to clarify that an NFP entity that is a general partner would be presumed to control a limited partnership unless the limited partners are able to exercise substantive kick-out or participating rights. Kick-out rights refer to rights underlying a limited partner’s ability to remove the general partner without cause. Participating rights allow limited partners to block or participate in certain significant financial and operating decisions of the limited partnership made in the ordinary course of business.
In January 2016, FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 added guidance for equity securities and other ownership interests in an entity that previously were within the scope of Subtopic 958-325, Not-for-Profit Entities—Investments—Other. FASB’s intent was not to affect current applications of the fair value elections by NFPs permitted in Subtopic 958-810. ASU 2017-02 makes updates to improve the clarity of FASB’s intent regarding fair value elections.
Effective Date & Transition
ASU 2017-02 will be effective for all NFPs for fiscal years beginning after December 15, 2016, and interim periods beginning after December 15, 2017. Early adoption is permitted, including in an interim period.
NFPs that already adopted ASU 2015-02 will be required to retrospectively apply the amendments to all relevant prior periods, beginning with the annual period ASU 2015-02 initially was adopted. Transition disclosures only are required if adoption results in an accounting principle change. If so, an NFP would disclose the nature of and reason for the change, a description of the prior-period information that has been retrospectively adjusted and the change’s cumulative effect on net assets in the statement of financial position.
NFPs that have not adopted ASU 2015-02 are required to adopt these amendments at the same time they adopt ASU 2015-02 using the same transition method elected for ASU 2015-02. If a retrospective method is elected for ASU 2015-02, ASU 2017-02 would retrospectively be applied to the same number of periods. No additional disclosures would be required.