POST-IMPLEMENTATION REVIEW CONCLUDES
NONCONTROLLING INTERESTS STANDARD ACHIEVES PURPOSE

FASB Issues Response Letter, Continues Outreach to Identify Improvements

Norwalk, CT—May 20, 2015—A 2007 accounting standard addressing ownership interests within a company’s subsidiary achieves its purpose and provides useful information to users of financial statements.

That was the conclusion of the Post-Implementation Review (PIR) of Financial Accounting Standards Board (FASB) Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (Statement 160). Statement 160 establishes accounting and reporting standards for noncontrolling interests in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated organization that should be reported as equity in the consolidated financial statements.

“The PIR report on Statement 160 tells us that, overall, the standard on noncontrolling interests is useful to investors,” said FASB Chairman Russell G. Golden.

“That said, the report did identify areas of improvement—most notably in the allocation of net income or loss between a parent company and the noncontrolling interest. The FASB plans to conduct outreach with stakeholders to understand if there are any cost-effective solutions that also reduce complexity without significantly reducing the usefulness of the information,” Golden said.

The PIR team developed its final report based on input from financial statement users, preparers, auditors, and regulators. Based on its research, the review team concluded:

• Statement 160 adequately resolved the issues underlying its stated need. In particular, it:
  • Eliminated the diversity associated with reporting noncontrolling interests in the financial statements, by requiring them to be recognized as a component of shareholders’ equity
  • Improved the relevance of reported financial information on noncontrolling interests by providing clear guidance on how to account for changes in a parent’s ownership interest in a subsidiary, including guidance on accounting for deconsolidation of a subsidiary
  • Converged the accounting for noncontrolling interests with International Accounting Standard 27, Consolidated and Separate Financial Statements.
• Information resulting from the application of Statement 160 generally provides investors with useful information. Investors factor information about noncontrolling interests in their analyses of a company’s projected future cash flows. By having information about the financial statement effects of a subsidiary in financial statements segregated by the parent and the noncontrolling interest holder(s), investors are able to more quickly determine the financial effects of a subsidiary on the parent company.
• Statement 160 generally is understandable, can be applied as intended, and enables information about noncontrolling information to be reported reliably for both public and private companies. Input received from some stakeholders indicated that the requirements for allocating net income or loss of a subsidiary between the parent and the noncontrolling interest holders are insufficient and difficult to apply in situations in which the equity structure of a subsidiary is complex and net income or loss is not shared proportionally.
• The changes made to financial and operating practices as a result of Statement 160 were not significant or unexpected. These changes were consistent with both FASB’s and stakeholders’ expectations.
• There were no significant unanticipated consequences as a result of Statement 160.
• Overall, both implementation and ongoing compliance costs associated with Statement 160 were not significant and were consistent with both FASB’s and stakeholders’ expectations.
• The PIR team had no significant standard-setting process recommendations as a result of the review.

The review of Statement 160 was undertaken by an independent team of the Financial Accounting Foundation (FAF), the parent organization of the FASB and the Governmental Accounting Standards Board (GASB). The team’s formal report is available here. The FASB’s response letter to the report is available here.

With the completion of the FAS 160 review, the PIR team will begin their review of FASB Statement No. 128, Earnings per Share, in a few weeks.

Stakeholders who would like the opportunity to participate in upcoming PIRs should register online. For more information on the PIR process, visit the FAF website.


About the Financial Accounting Foundation

Established in 1972, the Financial Accounting Foundation (FAF) is the independent, private-sector, not-for-profit organization based in Norwalk, Connecticut responsible for the oversight, administration, financing, and appointment of the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB). The FASB and GASB establish and improve financial accounting and reporting standards – known as Generally Accepted Accounting Principles, or GAAP – for public and private companies, not-for-profit organizations, and state and local governments in the United States. For more information, visit www.accountingfoundation.org.

About the Financial Accounting Standards Board

Established in 1973, the FASB is the independent, private-sector, not-for-profit organization based in Norwalk, Connecticut, that establishes financial accounting and reporting standards for public and private companies and not-for-profit organizations that follow Generally Accepted Accounting Principles (GAAP). The FASB is recognized by the Securities and Exchange Commission as the designated accounting standard setter for public companies. FASB standards are recognized as authoritative by many other organizations, including state Boards of Accountancy and the American Institute of CPAs (AICPA). The FASB develops and issues financial accounting standards through a transparent and inclusive process intended to promote financial reporting that provides useful information to investors and others who use financial reports. The Financial Accounting Foundation (FAF) supports and oversees the FASB. For more information, visit www.fasb.org.