United States

FASB Proposal Would Clarify Consolidation Guidance for Certain Not-for-Profit Entities

Aug 08, 2016
From the Financial Reporting Network

The FASB recently issued proposed ASU, Clarifying When a Not-for-Profit Entity That Is a General Partner Should Consolidate a For-Profit Limited Partnership or Similar Entity, which would reestablish the presumption of control by not-for-profit entities (NFPs) that are general partners of for-profit limited partnerships and similar entities. An NFP general partner would consolidate its investment in a limited partnership unless the limited partners had substantive kick-out or participating rights.

The FASB issued this proposal because ASU 2015-02, Amendments to the Consolidation Guidance, created uncertainty about how NFP general partners should evaluate whether to consolidate for-profit limited partnerships. Before adopting ASU 2015-02, NFP general partners generally applied the consolidation guidance that applies to partnerships and similar entities that were not variable interest entities (VIEs), including the presumption of control by general partners, unless the partnership interest was reported at fair value.

ASU 2015-02 eliminated the consolidation guidance for partnerships and similar entities that are not VIEs. Thus, reporting entities evaluate those entities under general consolidation guidance, which presumes that the partnership is first evaluated under the VIE consolidation model. This decision sequence in the amended guidance made it unclear how an NFP general partner should evaluate its interest in limited partnerships because NFPs generally are outside the scope of the VIE guidance.

The proposal also would clarify when an NFP may elect to account for a limited partnership investment at fair value rather than consolidating or reporting that investment using the equity method.

The comment period ends October 3.

Read Proposed FASB ASU

Read ASU 2015-02