Outside Review's Next for Partial Sales of Nonfinancial Assets

By Denise Lugo

Feb. 17 — The Financial Accounting Standards Board's overall decisions to clarify how companies should account for partial sales of nonfinancial assets—such as real estate—will be drafted for external review, the board said.

FASB's process to have its tentative decisions externally reviewed is part of its standard process to determine whether its decisions would have unintended consequences or would be operationally difficult.

The forthcoming proposal falls under Phase 2 of the board's clarification of the definition of a business. In addition to addressing how to account for partial sales of nonfinancial assets, the proposal will clarify the scope of Subtopic 610-20, Other Income—Gains and losses from Derecognition of Nonfinancial Assets.

Discussions about whether the proposed changes would be cost effective and whether to move ahead with issuing a proposal will continue at a a future meeting, according to FASB's Feb. 17 deliberations.

Those next steps were highlighted after discussions were completed related to nuanced items such as undivided interest, a type of commonly owned asset.

Undivided Interests

FASB decided that sales of undivided interests in a wholly owned nonfinancial asset won't be addressed in a forthcoming proposal about partial sales of nonfinancial assets.

An undivided interest is a form of ownership some consider to be similar to an equity interest. It's typically found in real estate, construction and extractive industries, but these types of transactions aren't common. Because of some of its similarities to an equity interest, FASB weighed whether or not to address undivided interests in the proposal.

No Changes

The board's decision not to address the topic means Subtopic 610-20 would remain silent on the sale of an undivided interest. Furthermore, Subtopic 970-323, Real Estate—General—Investments—Equity Method and Joint Ventures, would still indicate that a sale to a real estate venture, including undivided interests, would be accounted for similar to partial sale in subtopic 610-20.

Analyzing the Control Model

FASB also discussed how entities should analyze the control model under Subtopic 610-20 in partial sales transactions. Specifically, the board discussed whether the model should focus on the seller's loss of control or the buyer's control of an asset.

FASB decided to make it clear that the buyer is the former subsidiary rather than the sellers. The seller would transfer control when the entity outside the consolidated group has control of the asset.

“I think it’s very important when we think about loss of control, not to confuse loss of control of a nonfinancial asset, with obtaining a financial asset,” said FASB member Thomas Linsmeier. “I don’t think that’s the same thing. When you lose control of a nonfinancial asset to an entity you’ve lost control of the nonfinancial asset, all you get back is a financial asset, a proportionate claim on that thing, but it’s not the same asset,” he said.


FASB also voted to allow entities the ability to apply the modified retrospective approach to subtopic 610-20 and the full retrospective approach to Topic 606, Revenue from Contracts with Customers.

Full retrospective approach would mean the company would apply the rules to each prior period presented in the financial statements; modified retrospective means only to backtrack the rules to the most current period presented in the financial statements, with the cumulative effect recognized. Additional disclosures would be required, the board agreed.

To contact the reporter on this story: Denise Lugo in Norwalk, Conn., at dlugo@bna.com

To contact the editor responsible for this story: Laura Tieger Salisbury at lsalisbury@bna.com