FASB Proposes Changes in Consolidation Guidance

The Financial Accounting Standards Board has issued a proposed accounting standards update to amend the consolidation guidance for variable interest entities.

The proposed update would modify the consolidation guidance for how to treat indirect interests in VIEs. The guidance would pertain to how a reporting entity that is the sole decision maker for a variable interest entity would treat indirect interests in an “entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of the VIE.”

In 2014, FASB issued a standard for increasing the consistency and transparency of financial reporting about VIEs (see FASB Votes to Finalize Variable Interest Entity Standard). The work stemmed from a project by FASB's sister organization, the Private Company Council, which wanted to simplify the accounting for VIEs at privately held companies. FASB decided to expand the changes to public companies as well. The latest changes affect a specific aspect relating to indirect interests in VIEs.

FASB said it may also consider whether other changes are needed in the consolidation guidance for common control arrangements, but those would be part of a separate initiative.