Defining Issues  |  October 2016

FASB makes targeted change to VIE primary beneficiary test

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KPMG reports FASB changes on VIE primary beneficiary. ASU changes VIE analysis of indirect interests held through related parties under common control. Now on a proportionate basis.

Applicability

ASU 2016-17

  • Company applying ASC Topic 810, as amended by ASU 2015-02
  • In applying the consolidation standard to variable interest entities, analyzing indirect interests held through related parties under common control for the purpose of determining whether a decision maker or service provider is the primary beneficiary

Effective dates

Mandatory effective dates and early adoption provisions:

Annual periods:

For public business entities the effective date for annual periods is the fiscal years beginning after Dec. 15, 2016.

For all other entites the effective date for annual periods is the fiscal years beginning after Dec. 15, 2016.

Interim periods:

For public business entities the effective date for interim periods is the fiscal years beginning after Dec. 15, 2016.

For all other entites the effective date for interim periods is the fiscal years beginning after Dec. 15, 2017.

Key impacts

  • Amendments to FASB ASC Topic 810
How a decision maker or service provider considers indirect interests held through related parties under common control
Consolidation step Current US GAAP ASU
Determine whether a decision marker's fee is a variable interest Consider interests held by these related parties in their entirety No change
If the fee is a variable interest, determine whether the decision maker is the primary beneficiary of the variable interest entity (VIE) Consider interests held by these related parties in their entirety Consider interests held by related parties on a proportionate basis
  • ASU 2016-17 makes it less likely that a single decision maker will individually meet the characteristics to be the primary beneficiary of the VIE
  • However, ASU 2016-17 makes it more likely that a related party tiebreaker test will be required. The tiebreaker test is required when the single decision maker and its related parties under common control collectively meet the characteristics to be the VIE’s primary beneficiary

Podcast

  • Listen to KPMG's podcast here

Report contents

  • Summary of differences between current US GAAP and ASU 2016-17
  • Example showing the effect of the amendments
  • Effective date

 

 

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