This one’s a bit narrow and probably does not apply to most companies. Consolidation (Topic 810): Amendments for Certain Investment Funds. The guide will then be saved to your iBooks app for future access. Companies that present consolidated financial statements; Event contents. If it is, then the VIE consolidation model applies. ASC 810-10 provides guidance on general consolidation issues, as well as guidance related to variable interest entities and consolidation of entities controlled by contract. Not very helpful I admit. This was because the decision of whether to consolidate or not was based on ownership percentage and was relatively simple. Some of the characteristics of a legal entity to consider include: Does the entity file a tax return? Consolidation by contract (ASC 810-10 or formerly EITF Issue 97-2) Not-for-profit (ASC 810-958, Not-for-Profit Entities) This bulletin focuses on the VIE model. KPMG professionals discuss key consolidation accounting matters, covering variable interest entities, voting interest entities and controlling financial interests. Economic influence is the primary factor if and only if the the entity being considered for consolidation is a “variable interest entity” or VIE. Companies may pursue mergers and acquisitions for a variety of reasons. The following decision tree illustrates the initial screen. If the answer to this question is “YES”, the entity is a VIE. 9 1.1.3 Does the Reporting Entity Hold a Variable Interest in the Legal Entity? 9 1.1.4 Is the Legal Entity a VIE? Introduction A reporting entity must assess whether its involvement with another legal entity requires the reporting entity to consolidate that legal entity and / or provide disclosures in accordance with guidance for variable interest entities. Step 5 – Does the company, alone or together with related parties and de facto agents as a group, have the obligation to absorb losses of the VIE that could potentially be significant, or the right to receive benefits from the VIE that could potentially be significant? Identify and segregate any “silos” of the entity. Many private company have used the private company accounting alternative for commonly controlled leasing entities in order to avoid application of the VIE guidance to certain leasing entities. This can be very difficult to do for a legal entity with a complex capital structure. The simple truth is that can’t look at an entity on a superficial basis and determine whether or not it is a VIE. If not, jump to Step 6 (the voting interest model). To start, you need to identify all of the. You have to evaluate an entity for possible consolidation under the variable interest model only if you hold a variable interest in that entity. Determining which parties have the obligation to absorb expected losses may be a qualitative analysis, a quantitative analysis, or both. Consolidation of Limited Partnerships – Existing Guidance. Although businesses usually have outputs, outputs are not required for an integrated set to qualify as a business.” This last element is important when evaluating a development stage entity which will likely have no outputs for an extended period of time. If any one of the scope exceptions applies, you can immediately jump out of the variable interest model analysis for that entity and evaluate the entity under the voting interest model (Step 6). Is the entity required to file reports of any kind with a governmental agency? Transactions between NFPs that do not require the consolidation of one NFP by the other (see FASB ASC 958-810-25-4) The consolidation of a variable interest entity that is a collateralized financing entity. We hope this publication will help you understand and apply the consolidation guidance in ASC 810. Step 4 – Does the company, on its own or together with related parties and de facto agents as a group, have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance? 10 1.2 The VIE Model 10 This publication does not address the accounting under ASC 958-810. Here’s a high-level look at the consolidation process under ASC 810, Consolidation. A benefit plan need not be consolidated nor must it consolidate a VIE. Note that all blocks of italicized text are taken verbatim from the guidance in ASC 810, Consolidation. Financial buyers often aim to extract value from the target, … ASC 810-20 provides guidance related to the potential consolidation of partnerships and similar interests. Second, determine if your company has the power to direct those activities, either alone or together with related parties and de facto agents. There is no longer anything easy about consolidation. Standards Update—Consolidation (Topic 810): Applying Variable Interest Entity Guidance to Common Control Leasing Arrangements (a proposal of the Private Company Council (PCC), PCC proposal, or proposal). 810-30 Research and Development Arrangements ASC 810-30 notes that it “provides guidance on whether and how a sponsor should consolidate a research and development arrangement.” You must log in{"id":"id-cc46e73b-dfa5-4bff-9dab-b044335be9f3","action":"login-q3j74v"} to view this content and have a subscription package that includes this content. There are several scope exceptions that could nullify applicability of the variable interest model to an entity, so start here. If you hold such a loan in an entity, you are subject to the general credit of the entity (its ability and willingness to pay) and the financial performance of the collateral (the fair value of the assets that you can claim should the company default). This one is much more difficult to sort out. Step 2 – Does the company hold a variable interest? Can the entity enter into contracts in its own name? Recognition Within the scope of this subtopic, an entity shall apply guidance in Topic 810 on consolidation and in Topic 606 on revenue from contracts with customers. Once the decision tree has been drawn, the decision must then be evaluated. Here is an overview of the consolidation evaluation process under ASC 810: Step 1 – Evaluate the variable interest model scope exceptions. Download Citation | ASC 810 Consolidations | This chapter discusses the ASC 810 Consolidation. In this situation, none of the expected losses or benefits of the silo inure to any other variable interest holders of the legal entity, and none of the specified liabilities are payable from the residual assets attributable to the other variable interests of the entity. You are only required to consolidate (or deconsolidate) an entity under the variable interest model if it is a variable interest entity (VIE). We have reproduced this decision tree in the appendix to this publication. ASC 805-10-20 defines as business as, “An integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs, or other economic benefits directly to investors or other owners, members or participants.” In addition to this definition, ASC 805-10-55-4 through 9 provide implementation guidance that is helpful in determining what constitutes a business. Variable interests from the holder’s perspective, as opposed to the entity’s perspective, are usually assets such as receivables, leases (as lessor), rights to economic benefits (a beneficial interest in residual value of assets of the entity, for example), obligations to perform (a loan guarantee, for example), options (an exercisable right to purchase an asset for a fixed price, for example), among many others. Consolidation, ASC 810. accta January 1, 2016 November 30, 2018 U.S. GAAP by Topic. Under the voting interest model, the shareholders reap the benefits, and suffer the losses, of the entity’s financial performance. You have have to perform significant analysis and you will often need to crunch some numbers as well. 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