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Rules consolidating financials

Unfortunately, despite these requests, no definition was provided.

Current practice is to refer to the guidance from the Securities Exchange Commission (SEC), which was discussed by the Emerging Issues Task Force (EITF) in EITF Issue 02-5, The Private Company Council (PCC) and FASB (ASU 2014-07 para. They point to the use of the term in ASC Topic 805, “Business Combinations,” and the common control subsections included therein.

In practice, owners of private companies frequently establish a lessor entity as a VIE for tax, estate planning, or liability reasons rather than for the purpose of structuring off–balance-sheet arrangements.

Under Accounting Standards Codification (ASC) Topic 810, “Consolidation,” VIEs are generally consolidated with other related entities (e.g., a lessee operating company) under common control.

These include paying the income taxes of the lessor legal entity on income generated by an asset not being leased by the private company lessee and a purchase commitment entered into between the lessee and lessor to purchase or sell products.

In March 2014, FASB issued Accounting Standards Update (ASU) 2014-07, to consolidate lessor entities under common control if specified criteria are met.

The property company’s only source of income is the lease payments from the operating company, which are used to pay down the third-party debt.

Note that under the former VIE guidance (ASC 810-10-55-87–89), now superseded by ASU 2014-07, the operating company (lessee) was deemed to have an “implicit” variable interest in the property company (lessor), which required consolidation of the lessor’s financial statements. These users also contend that consolidated financial statements distort the financial position of both the lessor entity and the lessee entity because the assets held by the lessor or lessee entity would be beyond the reach of its creditors, even in the case of bankruptcy.

, was issued in December 2003 in response to accounting scandals in which certain types of variable interest entities (VIE) were used to structure transactions that excluded assets and liabilities from audited consolidated financial statements.

The types of VIEs and purposes of such vehicles vary considerably.

More specifically, a legal entity is a VIE if A reporting entity that meets the above criteria is deemed to have a variable interest in an entity and will consolidate the VIE as the primary beneficiary.

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Jul 14, 2016. An overview of the Financial Accounting Standards Board's FIN 46 and Variable Interest Entity VIE. 
23-Sep-2018 17:10
Feb 12, 2017. Under Accounting Standards Codification ASC Topic 810, “Consolidation,” VIEs are generally consolidated with other related entities e.g. a lessee operating company under common control. Private company financial statement preparers and auditors have suggested, however, that third-party users do. 
23-Sep-2018 17:14
Objectives of IAS 27. IAS 27 has the twin objectives of setting standards to be applied in the preparation and presentation of consolidated financial statements for a group of entities under the control of a parent; and; in accounting for investments in subsidiaries, jointly controlled entities, and associates when an entity elects. 
23-Sep-2018 17:18
Accounting rules require that parent companies "consolidate" their financial reports and include all the assets, liabilities, and operating results of all controlled subsidiaries. 
23-Sep-2018 17:20
Mar 29, 2010. TM and the Hierarchy of Generally Accepted Accounting. Principles, the FASB Accounting Standards Codification ASC generally is effective for financial statements issued for interim and annual periods ending after September 15, 2009. To aid readers in using this white paper, as a drafting convention in. 
23-Sep-2018 17:25

Rules consolidating financials introduction

Rules consolidating financials

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