The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) recently affirmed their decision to jointly develop guidance for consolidation of all entities, including entities currently considered variable interest entities (VIEs). The IASB closely followed the deliberations that led to the issuance of FASB Statement No. 167, Amendments to FASB Interpretation 46(R). Except for investment funds directed by investment managers, the deliberations of the IASB specific to structured entities (VIEs in U.S. generally accepted accounting principles (GAAP)) appear to yield similar consolidation results for other types of VIEs. However, the IASB’s preliminary deliberations seem to result in a different consolidation conclusion for investment funds when compared with the conclusion reached under U.S. GAAP. Accordingly, the FASB decided that the effective date of the amendments in Statement No. 167 should be deferred for investment funds so both Boards could develop consistent guidance on principal and agent relationships as part of the joint consolidation project.
The FASB has issued a proposed Accounting Standard Update, which if finalized, would defer the requirements in Statement No. 167 for an investment manager's interest in an entity (1) that has the attributes of an investment company or (2) for which it is industry practice to apply measurement principles for financial reporting purposes that are consistent with those followed by investment companies. The proposed deferral would not apply in situations in which a reporting entity has the explicit or implicit obligation to fund actual losses of an entity that could potentially be significant to the entity. The proposed deferral also would not apply to interests in securitization entities, asset-backed financing entities, or entities formerly considered qualifying special-purpose entities. In addition, the proposed deferral would apply to a reporting entity's interest in an entity that is required to comply or operate in accordance with requirements similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. An entity that qualifies for the deferral would continue to be assessed under the overall guidance on the consolidation of VIEs in Subtopic 810-10 (before its amendment by Statement No.167) or other applicable consolidation guidance, such as the guidance for the consolidation of partnerships in Subtopic 810-20. The amendments in the proposed Update would not defer the disclosure requirements in Statement No. 167. Accordingly, both public and nonpublic companies would be required to provide the disclosures included in Statement No. 167 for all VIEs in which they hold a variable interest, including those VIEs that qualify for the deferral.
The amendments in the proposed Update also would clarify that for entities that do not qualify for the proposed deferral, related parties should be considered when evaluating each of the criteria in Statement No. 167 for determining whether a decision maker or service provider fee represents a variable interest. In addition, the requirements for evaluating whether a fee is a variable interest in situations in which a decision maker or service provider holds another interest in the related VIE would be modified to clarify that a quantitative calculation should not be the sole basis for evaluating whether the other variable interest is more than insignificant.
The amendments in the proposed Update would be effective as of the effective date for Statement No. 167 (i.e., as of the beginning of a reporting entity's first annual period that begins after November 15, 2009, and for interim periods within that first annual reporting period). The proposed Update is available for comment until January 6, 2010 at FASB Exposure Documents. |