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A PDF version of this publication is attached here: Consolidation guide - November 2021 (PDF 3.71mb)
PwC is pleased to offer our Consolidation guide. This guide begins with a summary of the overall consolidation framework. The ensuing chapters discuss the variable interest entity and the voting interest entity models. In addition, this guide discusses the accounting for intercompany transactions in consolidation and other related matters.
This guide summarizes the applicable accounting literature, including relevant references to and excerpts from the FASB’s Accounting Standards Codification (the Codification). It also provides our insights and perspectives, interpretative and application guidance, illustrative examples, and discussion on emerging practice issues.
This guide should be used in combination with a thorough analysis of the relevant facts and circumstances, review of the authoritative accounting literature, and appropriate professional and technical advice.
References to US GAAP
Definitions, full paragraphs, and excerpts from the Financial Accounting Standards Board's Accounting Standards Codification are clearly designated, either within quotes in the regular text or enclosed within a shaded box. In some instances, guidance was cited with minor editorial modification to flow in the context of the PwC Guide. The remaining text is PwC's original content.
References to other PwC guidance
This guide provides general and specific references to chapters in other PwC guides to assist users in finding other relevant information. References to other guides are indicated by the applicable guide abbreviation followed by the specific section number. The other PwC guides referred to in this guide, including their abbreviations are:
Bankruptcies and liquidations (BLG)
Business combinations and noncontrolling interests (BCG)
Derivative instruments and hedging activities (DH)
Equity method investments and joint ventures (EM)
Fair value measurements, global edition (FV)
Financial statement presentation (FSP)
Financing transactions (FG)
Income taxes (TX)
• Not-for-profit entities (NP)
Stock-based compensation (SC)
Transfers and servicing of financial assets (TS)
Utilities and power companies (UP)
Summary of significant changes
Following is a summary of the noteworthy revisions to the guide since it was last updated. Additional updates may be made to keep pace with significant developments.
Revisions made in November 2021
  • Our interpretive guidance on the application of the VIE accounting model which was previously in a single chapter was reorganized and split into CG 2 through CG 6. Updates were made throughout the guide to reflect the revised references and reorganization of the guide.
CG 1, The consolidation framework
  • The discussion of legal entities, formerly in CG 1.2.2 and CG 1.2.2.1, was moved to CG 2.1 and CG 2.1.1. Similar content related to legal entities that was formerly in CG 2.1.1. was moved to CG 1.2.2.
  • Former CG 1.2.3.1 to CG 1.2.3.4, which describe the general scope exceptions to the consolidation guidance, were moved to CG 2.2.
CG 2, Scope of consolidation guidance
  • Former CG 2, Variable interest entity model, was split into four chapters (CG 2 through CG 6) to improve user experience and readability.
  • CG 2.3.4 (former CG 2.1.2.4) was updated to reflect that ASU 2017-01, Clarifying the definition of a business, is now effective for all entities. In addition, clarifying language was added to illustrate situations in which a reporting entity participates significantly in the design or redesign of an entity being evaluated for consolidation.
CG 3, Variable interests
  • Example CG 3-7 was added to CG 3.3.1 (former CG 2.2.3.1) to illustrate the evaluation of whether an interest in a trust preferred security is a variable interest.
  • CG 3.3.7 (former CG 2.2.3.7) was enhanced to provide additional guidance on how to evaluate whether a license or similar arrangement creates or absorbs variability in the entity.
  • CG 3.4.1.1 was added to provide additional guidance for situations in which contractual features expose decision makers to risk of loss.
CG 4, Determining whether an entity is a VIE
  • Superseded guidance regarding development stage entities was removed from CG 4.3.1 (former CG 2.3.3.1).
  • Example CG 4-13 to Example CG 4-17 were updated and added to CG 4.4.5.2 (former CG 2.3.3.2) to illustrate the evaluation of the impact of kick-out rights on the assessment of Characteristic 2 for limited partnerships. These examples were previously included in former CG 3.5.2.2 and CG 3.5.2.3.
CG 5, Identifying the primary beneficiary of a VIE
  • CG 5.2.10 (former CG 2.4.2.9) was updated to add clarifying language for when decision making is outsourced through a third-party contract.
  • CG 5.3.4 (former CG 2.4.3.1) was updated to clarify the language in Question CG 5-4, which discusses whether a variable interest holder would meet the power criterion if that single party can exercise a substantive participating right.
  • The list of factors in CG 5.3.5 (former CG 2.4.3.1), that provides considerations for determining if call options provide the holder with power over an entity, was updated.
  • Example CG 5-14 in CG 5.7.2 (former CG 2.4.6.2) was updated to better illustrate the primary beneficiary assessment for a commonly controlled related party group.
CG 6, Initial Consolidation
  • CG 6.1 (former CG 1.4.2.1) was revised to provide additional guidance on the initial consolidation of a VIE that does not meet the definition of a business.
  • The discussion formerly in CG 6.5, Consolidation considerations for not-for-profit entities, was removed and is now incorporated in NP 5.1 and NP 9.2.
CG 7, Voting Interest Model
  • Example CG 4-13 to Example CG 4-17 (formerly Example CG 3-6 to Example CG 3-9), that illustrate how to evaluate the impact of kick-out rights on the assessment of Characteristic 2 for limited partnerships, were removed from former CG 3.5.2.2 and CG 3.5.2.3. These examples are now included in CG 4.4.5.2.
CG 8, Intercompany transactions and other matters
  • Example CG 8-1 in CG 8.2.3 (former CG 6.2.3) was clarified to enhance the accounting analysis of intercompany eliminations in situations where a parent sells inventory to a partially owned subsidiary.
Copyrights
This publication has been prepared for general informational purposes, and does not constitute professional advice on facts and circumstances specific to any person or entity. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication. The information contained in this publication was not intended or written to be used, and cannot be used, for purposes of avoiding penalties or sanctions imposed by any government or other regulatory body. PricewaterhouseCoopers LLP, its members, employees, and agents shall not be responsible for any loss sustained by any person or entity that relies on the information contained in this publication. Certain aspects of this publication may be superseded as new guidance or interpretations emerge. Financial statement preparers and other users of this publication are therefore cautioned to stay abreast of and carefully evaluate subsequent authoritative and interpretative guidance.
The FASB Accounting Standards Codification® material is copyrighted by the Financial Accounting Foundation, 401 Merritt 7, Norwalk, CT 06856, and is reproduced with permission.
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