On 20 September 2017, the FASB issued a proposed ASU, Consolidation – (Topic 812): Reorganization. The FASB is issuing this proposed ASU in response to stakeholders’ concerns that the consolidation guidance in Topic 810, Consolidation, as currently organized, is difficult to understand and navigate.
The areas for improvements in this proposed ASU include the following:
- The proposed amendments would affect all reporting entities that are required to determine whether they should consolidate a legal entity.
- The proposed amendments would change how the consolidation guidance is organized and would clarify certain items within that guidance.
The proposed amendment would reorganize the consolidation guidance and clarify certain areas of the guidance that should make navigating and understanding consolidation guidance easier without affecting how consolidation analyses are currently performed.
Specifically, the consolidation guidance currently in Topic 810 would be reorganized into a new Topic (Topic 812), with separate Subtopics for variable interest entities (VIEs) and voting interest entities (Subtopics 812-20, Consolidation—Variable Interest Entities, and 812-30, Consolidation—Voting Interest Entities, respectively). The guidance for “Consolidation of Entities Controlled by Contract” currently in Topic 810 would be moved to Topic 958, Not-for-Profit Entities, because that guidance is applicable only for not-for-profit entities. The guidance currently in Subtopic 810-30 for research and development arrangements would be superseded. Certain areas of the guidance would be clarified to make the consolidation guidance easier to understand without the intent of (a) changing analyses performed or (b) outcomes currently reached by stakeholders.
Effective dates and transition requirements
The Board will set the effective date for the amendments in this proposed ASU after it considers interested parties’ feedback on the proposed ASU. While the Board does not anticipate changes in practice or outcomes from the reorganization of consolidation guidance in this proposed ASU, it has provided transition requirements. The Board has done so because when it has undertaken efforts similar to those in this proposed ASU, those efforts have, in limited circumstances, resulted in a change in practice.
Entities that have not yet adopted the amendments in ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, would be required to adopt the amendments in this proposed ASU at the same time that they adopt the amendments in ASU 2015-02 and should apply the same transition method elected for the application of ASU 2015-02. Specifically, a reporting entity may apply the amendments in this ASU using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption or may apply the amendments retrospectively.
Entities that already have adopted the amendments in ASU 2015-02 would be required to apply the amendments in this proposed ASU retrospectively to all relevant prior periods beginning with the fiscal year in which the amendments in ASU 2015-02 initially were applied.