New Rule Eases Reporting for Certain Indirect Interests

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By Steve Burkholder

Oct. 26 — Energy companies, automakers, life insurers and other companies will likely have their consolidation reporting burdens for certain indirect investment interests lightened under new Financial Accounting Standards Board rules.

The new accounting standard update (ASU 2016-17), released Oct. 26, will lead to a company not having to report in its umbrella financial statements all of its indirect interests held through related parties under common control.

Instead, the enterprise will include those interests on a proportionate basis, under specific prescriptions in the new rules. That would be consistent with treatment of indirect interests held through other related parties, FASB’s staff stated at a board meeting in August.

SPE's, VIE's and Enron

The new rules, which amend earlier FASB guidance on consolidation of what are known as “variable interest entities,” represent the latest step in an ongoing effort to improve and simplify a complex area of accounting.

The “VIE” consolidation rules hark back to the time just after the Enron Corp. scandal of 2001-2002, when investment vehicles known as “special-purpose entities"—later labeled by FASB variable interest entities—kept off the Houston energy giant’s balance sheet helped lead to the company’s downfall.

2017 Effective Date

The fresh, narrowly drawn accounting guidance is effective for public companies in fiscal years starting after Dec. 15, 2016, including for interim reporting in those fiscal years.

All other enterprises are to apply the standard starting for fiscal-year reporting under the same timetable. However, non-public entities’ interim reporting requirements under the new rules wouldn’t start until 2018.

Companies, CPA Firms Generally Supportive

The FASB proposal embodying the changes gained the general support of companies such as Ford Motor Co; Ferrellgas Partners L.P., a Kansas propane retailer; and coal producer Alliance Resource Partners, L.P., of Tulsa.

The Big Four accounting firms, along with BDO USA LLP and Grant Thornton LLP, also favored the amendments of consolidations rules (ASC 810), which are a direct response to earlier, 2015 changes to accounting principles (ASU 2015-02).

The American Council of Life Insurers also favored the changes made by FASB.

To contact the reporter on this story: Steve Burkholder in Norwalk, Conn. at

To contact the editor responsible for this story: S. Ali Sartipzadeh at

For More Information

The new FASB standards update on consolidations is available at

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