The FASB issued Accounting Standards Update (ASU) No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, on Feb. 18, 2015, to improve certain areas of consolidation guidance for reporting organizations (i.e., public, private, and not-for-profit) that are required to evaluate whether to consolidate certain legal entities such as limited partnerships, limited liability corporations, and securitization structures (e.g., collateralized debt/loan obligations).

ASU 2015-02 simplifies and improves GAAP by:

1. Eliminating the presumption that a general partner should consolidate a limited partnership.

2. Eliminating the indefinite deferral of FASB Statement No. 167, thereby reducing the number of Variable Interest Entity (VIE) consolidation models from four to two (including the limited partnership consolidation model).

3. Clarifying when fees paid to a decision-maker should be a factor to include in the consolidation of VIEs.  Note: a VIE is a legal entity in which consolidation is not based on a majority of voting rights.

4. Amending the guidance for assessing how related party relationships affect VIE consolidation analysis.

5. Excluding certain money market funds from the consolidation guidance.

There are a number of differences between ASU 2015-02 and IFRS 10, Consolidated Financial Statements.  As a result the decision to consolidate an entity may differ under GAAP versus IFRS.

For public companies, ASU 2015-02 will be effective for periods beginning after Dec. 15, 2015. For private companies and not-for-profit organizations, it will be effective for annual periods beginning after Dec. 15, 2016, and for interim periods, beginning after Dec. 15, 2017. Early adoption is permitted, including adoption in an interim period. Since early adoption is permitted, this material is subject to testing on the exam in the first full testing window six months after issuance, or beginning on Oct. 1, 2015.

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