The Financial Accounting Standards Board (FASB) has issued a proposed Accounting Standards Update intended to increase transparency and consistency of financial reporting about consolidations. Comments on the proposal are requested by January 17, 2012.
The proposed amendments in this Update would affect all companies that are required to evaluate whether they should consolidate another entity. It provides criteria for a reporting entity to evaluate whether a decision maker is using its power as a principal or an agent. These criteria would affect the evaluation whether an entity is a variable interest entity and, if so, whether the reporting entity should consolidate the entity being evaluated. The determination whether the decision maker is using its power as a principal or an agent would be based on the rights held by other parties, the compensation the decision maker is entitled in accordance with the compensation agreement, and the decision maker’s exposure to variability of returns from other interests that it holds in the entity.
See full Press Release.
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