FASB ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis

The Financial Accounting Standards Board (FASB) issued an Accounting Standards Update, intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions).

The announcement makes a small change to deciding if consolidation is required under Generally Accepted Accounting Principles (GAAP). Since no change has been made to the way the accounting for consolidated entities is done, we do not foresee much impact on the CPA Exam, though we anticipate having to update the FAR course slightly.

According to the FASB News Release:

This new standard simplifies consolidation accounting by reducing the number of consolidation models, providing incremental benefits to stakeholders. For example, specialized guidance for legal entities will be eliminated by removing the indefinite deferral for certain investment funds, and certain money market funds will no longer have to apply the guidance.

In addition to reducing the number of consolidation models from four to two, the new standard simplifies the FASB Accounting Standards Codification and improves current Generally Accepted Accounting Principles (GAAP) by:

  • Placing more emphasis on risk of loss when determining a controlling financial interest. A reporting organization may no longer have to consolidate a legal entity in certain circumstances based solely on its fee arrangement, when certain criteria are met.
  • Reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity (VIE).
  • Changing consolidation conclusions for public and private companies in several industries that typically make use of limited partnerships or VIEs.

More information on the standard is available on the FASB website.