2. Amend paragraph 810-10-25-42, with a link to transition paragraph 810-10-65-8, as follows:
Consolidation—Overall
Recognition
Variable Interest Entities
> Consolidation Based on Variable Interests
810-10-25-38A A reporting entity with a variable interest in a VIE shall assess whether the reporting entity has a controlling financial interest in the VIE and, thus, is the VIE's primary beneficiary. This shall include an assessment of the characteristics of the reporting entity's variable interest(s) and other involvements (including involvement of related parties and de facto agents), if any, in the VIE, as well as the involvement of other variable interest holders. Paragraph 810-10-25-43 provides guidance on related parties and de facto agents. Additionally, the assessment shall consider the VIE's purpose and design, including the risks that the VIE was designed to create and pass through to its variable interest holders. A reporting entity shall be deemed to have a controlling financial interest in a VIE if it has both of the following characteristics:
- The power to direct the activities of a VIE that most significantly impact the VIE's economic performance
- The obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The quantitative approach described in the definitions of the terms expected losses, expected residual returns, and expected variability is not required and shall not be the sole determinant as to whether a reporting entity has these obligations or rights.
Only one reporting entity, if any, is expected to be identified as the primary beneficiary of a VIE. Although more than one reporting entity could have the characteristic in (b) of this paragraph, only one reporting entity if any, will have the power to direct the activities of a VIE that most significantly impact the VIE's economic performance.
> > The Effect of Related Parties
810-10-25-42 Single Decision Maker—The assessment in this paragraph shall be applied only by a single reporting entity that meets the characteristic in paragraph 810-10-25-38A(a). For purposes of determining whether that single reporting entity, which is a single decision maker, is the primary beneficiary of a VIE, the single decision maker shall include
all of its direct
economic
variable interests in the entity and
, on a proportionate basis, its indirect
economic
variable interests in the entity held through related parties (the term
related parties in this paragraph refers to all parties as defined in paragraph 810-10-25-43)
, considered on a proportionate basis
. For example, if the single decision maker owns a 20 percent interest in a related party and that related party owns a 40 percent interest in the entity being evaluated, the single decision maker's
indirect interest
in the VIE held through the related party would be
considered
equivalent to an 8 percent direct interest in the VIE for purposes of evaluating the characteristic in paragraph 810-10-25-38A(b) (assuming it has no other relationships with the entity). Similarly, if an employee (or de facto agent) of the single decision maker owns an interest in the entity being evaluated and that employee's (or de facto agent's) interest has been financed by the single decision maker, the single decision maker would include that financing as its indirect interest in the evaluation. For example, if a
single decision maker's employees have a 30 percent interest in the VIE and one third of that interest was financed by the
single decision maker, then the single decision maker's
indirect interest
in the VIE through the financing would be
considered
equivalent to a 10 percent direct interest in the VIE.
Indirect interests held through related parties that are under common control with the decision maker should be considered the equivalent of direct interests in their entirety.
810-10-25-43 For purposes of applying the guidance in the Variable Interest Entities Subsections, unless otherwise specified, the term related parties includes those parties identified in Topic 850 and certain other parties that are acting as de facto agents or de facto principals of the variable interest holder. All of the following are considered to be de facto agents of a reporting entity:
a. A party that cannot finance its operations without subordinated financial support from the reporting entity, for example, another VIE of which the reporting entity is the primary beneficiary
b. A party that received its interests as a contribution or a loan from the reporting entity
c. An officer, employee, or member of the governing board of the reporting entity
d. A party that has an agreement that it cannot sell, transfer, or encumber its interests in the VIE without the prior approval of the reporting entity. The right of prior approval creates a de facto agency relationship only if that right could constrain the other party's ability to manage the economic risks or realize the economic rewards from its interests in a VIE through the sale, transfer, or encumbrance of those interests. However, a de facto agency relationship does not exist if both the reporting entity and the party have right of prior approval and the rights are based on mutually agreed terms by willing, independent parties.
1. Subparagraph superseded by Accounting Standards Update No. 2009-17
2. Subparagraph superseded by Accounting Standards Update No. 2009-17
e. A party that has a close business relationship like the relationship between a professional service provider and one of its significant clients.
810-10-25-44 The guidance in this paragraph shall be applicable for situations in which the conditions in paragraph 810-10-25-44A have been met or when power is shared for a VIE. In situations in which a reporting entity concludes that neither it nor one of its related parties has the characteristics in paragraph 810-10-25-38A but, as a group, the reporting entity and its related parties (including the de facto agents described in paragraph 810-10-25-43) have those characteristics, then the party within the related party group that is most closely associated with the VIE is the primary beneficiary. The determination of which party within the related party group is most closely associated with the VIE requires judgment and shall be based on an analysis of all relevant facts and circumstances, including all of the following:
- The existence of a principal-agency relationship between parties within the related party group
- The relationship and significance of the activities of the VIE to the various parties within the related party group
- A party's exposure to the variability associated with the anticipated economic performance of the VIE
- The design of the VIE.
810-10-25-44A In situations in which a single decision maker concludes, after performing the assessment in paragraph 810-10-25-42, that it does not have the characteristics in paragraph 810-10-25-38A, the single decision maker shall apply the guidance in paragraph 810-10-25-44 only when the single decision maker and one or more of its related parties are under common control and, as a group, the single decision maker and those related parties have the characteristics in paragraph 810-10-25-38A.
3. Add paragraph 810-10-65-8 and its related heading as follows:
> Transition Related to Accounting Standards Update No. 2016-17,Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control
810-10-65-8 The following represents the transition and effective date information related to Accounting Standards Update No. 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control:
a. The pending content that links to this paragraph shall be effective as follows:
1. For public business entities, for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years
2. For all other entities, for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017.
b. An entity that has not yet adopted the pending content that links to paragraph 810-10-65-7 shall adopt the pending content that links to this paragraph at the same time that it adopts the pending content that links to paragraph 810-10-65-7 and shall apply the same transition method elected for the pending content that links to paragraph 810-10-65-7.
c. An entity that has adopted the pending content that links to paragraph 810-10-65-7 shall adopt the pending content that links to this paragraph retrospectively to all relevant prior periods beginning with the fiscal years in which the pending content that links to paragraph 810-10-65-7 was initially applied. The entity shall recognize the cumulative effect of initially applying the pending content that links to this paragraph as an adjustment to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) of the fiscal year that includes the date of initial adoption.
d. Earlier adoption is permitted, including adoption in an interim period. If an entity adopts the pending content that links to this paragraph in an interim period, any adjustments shall be reflected as of the beginning of the fiscal year that includes that interim period.
e. An entity shall provide the disclosures in paragraphs 250-10-50-1 through 50-2 (with the exception of the disclosure in paragraph 250-10-50-1(b)(2)) in the period in which the entity adopts the pending content that links to this paragraph.
4. Amend paragraph 810-10-00-1, by adding the following items to the table, as follows:
810-10-00-1 The following table identifies the changes made to this Subtopic.
Paragraph |
Action |
Accounting Standards Update |
Date |
810-10-25-42 |
Amended |
2016-17 |
10/26/2016 |
810-10-65-8 |
Added |
2016-17 |
10/26/2016 |
The amendments in this Update were adopted by the affirmative vote of six members of the Financial Accounting Standards Board. Ms. Botosan abstained.
Members of the Financial Accounting Standards Board:
Russell G. Golden, Chairman
James L. Kroeker, Vice Chairman
Christine A. Botosan
Daryl E. Buck
R. Harold Schroeder
Marc A. Siegel
Lawrence W. Smith