On February 18, the Financial Accounting Standards Board (FASB) issued the Accounting Standards Update (ASU) No. 2015-02. This update was designed to improve certain areas of consolidation guidance for reporting organizations that are required to evaluate consolidating certain legal entities. This update applies to public, private and not-for-profit corporations when deciding if they should consolidate legal entities such as limited partnerships, limited liability corporations and securitization structures.
ASU 2015-02 simplifies and improves generally accepted accounting principles (GAAP) by:
- Removing the presumption that a general partner should consolidate a limited partnership
- Removing the indefinite deferral of FASB Statement No. 167, thereby reducing the number of Variable Interest Entity (VIE) consolidation models from four to two (including the limited partnership consolidation model)
- Clarifying when fees paid to a decision maker should be a factor to include in the consolidation of VIEs
- Note: a VIE is a legal entity in which consolidation is not based on a majority of voting rights
- Amending the guidance for assessing how related party relationships affect VIE consolidation analysis
- Excluding certain money market funds from the consolidation guidance
Due to a number of differences between the ASU 2015-02 and the IFRS 10 Consolidated Financial Statements, the decision to consolidate an entity may be different under GAAP versus IFRS.
The ASU 2015-02 will take effective for companies on the following dates:
- Public companies: December 15, 2015
- Private companies: December 15, 2016
- Not-for-profit organizations: December 15, 2016
- Interim periods: December 15, 2017
Companies may adopt the ASU 2015-02 early, including adopting in the interim period.
This material is subject to testing on the CPA exam beginning on October 1, 2015.