On the Horizon

Consolidation: Targeted Improvements to Related Party Guidance for Variable Interest Entities


Stakeholders are encouraged to review and provide comments on the FASB’s proposal to reduce cost and complexity and to improve financial reporting associated with consolidation of variable interest entities (VIEs) by September 5, 2017.
The proposed ASU was issued in response to stakeholders’ observations that Topic 810, Consolidation, could be improved.

The proposed ASU was issued in response to stakeholders’ observations that Topic 810, Consolidation, could be improved in the following areas:
  1. Applying the VIE guidance to private companies under common control
  2. Considering indirect interests held through related parties under common control for determining whether fees paid to decision makers and service providers are variable interests
  3. Applying certain requirements to situations in which power is shared among related parties or when, as a group, related parties under common control have a controlling financial interest in a VIE.
The amendments in the proposed ASU would affect organizations that are required to determine whether they should consolidate a legal entity under the guidance within the Variable Interest Entities Subsections of Subtopic 810-10, Consolidation—Overall, including private companies that have elected the accounting alternative for leasing arrangements under common control.

More information can be found on the project page, including a FASB in Focus.


Consolidation: Reorganization and Targeted Improvements

Certain areas of the guidance will be clarified to make the consolidation guidance easier to understand without the intent of changing analyses performed or outcomes currently reached by stakeholders.

In the third quarter, the FASB plans to issue a proposed ASU to reorganize the guidance in Topic 810, Consolidation, in response to stakeholder concerns that current consolidation guidance is overly complex and is difficult to understand and navigate.

The amendments in the proposed Update will affect the organization of the consolidation guidance and provide clarification of certain items within that guidance. Specifically, the current consolidation guidance will be reorganized into a new Topic (Topic 812), with separate Subtopics for VIEs and voting interest entities.

Certain areas of the guidance will be clarified to make the consolidation guidance easier to understand without the intent of changing analyses performed or outcomes currently reached by stakeholders. The amendments in the proposed Update will affect all reporting entities that are required to determine whether they should consolidate a legal entity.

More information can be found on the project page.


Revenue Recognition of Grants and Contracts by Not-For-Profits


In the coming days, the FASB plans to issue a proposed ASU to clarify and improve the scope and the accounting guidance for contributions received and made by not-for-profit organizations.

Stakeholders, including those on the Not-for-Profit Advisory Committee and the American Institute of Certified Public Accountants Expert Panels, indicated that there is difficulty and diversity in practice among not-for-profits with:
  1. Characterizing grants and similar contracts with government agencies and others as reciprocal transactions (exchanges) or nonreciprocal transactions (contributions)
  2. Distinguishing between conditional and unconditional contributions.
The amendments in this proposed ASU would provide a more robust framework to determine when a transaction should be accounted for as a contribution or as an exchange transaction.
The amendments in this proposed ASU would provide a more robust framework to determine when a transaction should be accounted for as a contribution or as an exchange transaction accounted for under other guidance (such as Topic 606, Revenue Recognition).

The proposed ASU also helps preparers determine whether a contribution is conditional or unconditional, and helps distinguish a conditional contribution from a restricted unconditional contribution. These improvements would result in greater consistency in application of the guidance, and would make the accounting for contributions more operable.

Accounting for contributions is an issue primarily for not-for-profit organizations because contributions are a significant source of revenue. However, the amendments in this proposed Update would apply to all organizations that receive or make contributions of cash and other assets, including business organizations. The proposed amendments would not apply to transfers of assets from the government to businesses.

More information can be found on the project page.