An accounting standard FASB issued in 2007 to address ownership interests within a company’s subsidiary achieves its purpose but does have areas that might be improved, a review found.
A Financial Accounting Foundation (FAF) post-implementation review team examined FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51. FAF is FASB’s parent organization.
The review report, which was made public Wednesday, found that Statement No. 160 adequately resolved the issues underlying its stated need. Based on input from financial statement users, preparers, auditors, and regulators, the review team found that the standard:
- Eliminated diversity associated with reporting noncontrolling interests in the financial statements by requiring them to be recognized as a component of shareholders’ equity.
- Improved the relevance of reported financial information on noncontrolling interests by providing clear guidance on how to account for changes in a parent’s ownership interest in a subsidiary, including guidance on accounting for deconsolidation of a subsidiary.
- Converged the accounting for noncontrolling interests with International Accounting Standard 27, Consolidated and Separate Financial Statements.
- Generally provides investors with useful information.
- Is generally understandable and can be applied as intended.
But several practitioners and preparers reported that Statement No. 160’s requirements for allocating net income or loss between the parent and the noncontrolling interest holders are vague, insufficient, and difficult to apply when the equity structure of the subsidiary is complex and does not allow for proportional sharing of net income or loss.
“The report did identify areas of improvement—most notably in the allocation of net income or loss between a parent company and the noncontrolling interest,” FASB Chairman Russell Golden said in a news release. “The FASB plans to conduct outreach with stakeholders to understand if there are any cost-effective solutions that also reduce complexity without significantly reducing the usefulness of the information.”
The post-implementation review team now will turn its focus to a review of FASB Statement No. 128, Earnings per Share. Those who would like to participate in upcoming post-implementation reviews can register on the FAF website.
—Ken Tysiac ( ktysiac@aicpa.org ) is a JofA editorial director.
