Updates to Consolidation Rules – ASU 2010-02 and ASU 2010-10

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ASU 2010-02 “Accounting and Reporting Decreases in Ownership of a Subsidiary – a Scope Clarification” updates FASC Topic 810 “Consolidation.” This ASU clarifies that FASC Subtopic 810-10 applies to a subsidiary or group of assets that is a business or nonprofit activity that is transferred to an equity method investee or joint venture or an exchange of a group of assets that constitute a business or nonprofit activity for a non-controlling interest in an entity. The decrease in ownership guidance does not apply to sales of in substance real estate or conveyances of oil and gas mineral rights. 

ASU 2010-02 adds the term “nonprofit activity” to the FASC Glossary. A nonprofit activity is defined as an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing benefits as a fulfillment of an entity’s purpose or mission such as providing goods or services to beneficiaries, customers or members.
In addition to clarifying the scope of FASC Topic 810, ASU 2010-10 adds the following disclosures:
1. A description of the valuation techniques used to measure the fair value of any retained investment in the former subsidiary or group of assets,
2. Information that enables uses of the parent’s financial statements to assess the inputs used to develop the fair value,
3. The nature of any continuing involvement,
4. Whether the transaction was with a related party, and
5. Whether the former subsidiary or entity acquiring a group of assets will be a related party after deconsolidation.
ASU 2010-02 was effective for periods ending after December 15, 2009 except for not-for-profit organizations which are required to adopt the guidance in annual periods beginning on or after December 15, 2009.
ASU 2010-10 “Amendments for Certain Investment Funds” updates FASC Topic 810 “Consolidation.” This ASU defers the adoption of the consolidation requirements of FASC Topic 810 (fka FAS 167) for entity’s that are an investment company under FASC Topic 946 “Financial Services – Investment Companies” or for entity’s where it is industry practice to apply the measurement principles that are consistent with those followed by investment companies. However, the ASU does not defer the disclosures required by FAS 167.
This ASU also clarifies that the evaluation of whether fees paid to a legal entity’s decision makers or service providers are variable interests should not be based solely on the quantitative approach and that the quantitative approach is not required. Also, any interest held by a related party to the decision makers or services providers should be included in the evaluation.
ASU 2010-10 is effective for annual reporting periods beginning after November 15, 2009 and for interim periods within that annual reporting period.

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