The Financial Accounting Standards Board (FASB) has issued a FASB Staff Position (FSP), which makes several changes to the current guidance on consolidation and the equity method of accounting in AICPA Statement of Position (SOP) 94-3, Reporting of Related Entities by Not-for-Profit Organizations, and the AICPA Audit and Accounting Guide, Health Care Organizations (the Guide). The purpose of the changes is to make the guidance more consistent between the two pronouncements and with other authoritative standards, where appropriate. FSP No. SOP 94-3-1 and AAG HCO-1, Omnibus Changes to Consolidation and Equity Method Guidance for Not-for-Profit Organizations:
- Eliminates the temporary control exception to consolidation that currently exists for certain relationships between not-for-profit organizations, and makes two related changes:
- Amends SOP 94-3 and the Guide such that an organization is deemed to have a majority voting interest in the board of another entity whenever it has the direct or indirect ability to appoint individuals that together constitute a majority of the votes of the fully constituted board.
- Conforms the categorization of sole corporate membership in SOP 94-3 to that in the Guide, i.e., sole corporate membership of one not-for-profit organization in another generally is considered a controlling financial interest unless the sole corporate member’s economic interest in the controlled entity is limited by state law or contractual agreement.
- With rare exception, confirms the continued applicability to not-for-profit lessees of the guidance on consolidation of special-purpose-entity lessors in the following Emerging Issues Task Force (EITF) Issues:
- Issue No. 90-15, “Impact of Nonsubstantive Lessors, Residual Value Guarantees, and Other Provisions in Leasing Transactions”
- Issue No. 96-21, “Implementation Issues in Accounting for Leasing Transactions involving Special-Purpose Entities”
- Issue No. 97-1, “Implementation Issues in Accounting for Leasing Transactions, including Those involving Special-Purpose Entities”
- Requires not-for-profit organizations to apply the guidance on the equity method of accounting in the following pronouncements to their investments in for-profit partnerships, limited liability companies, and similar entities unless those investments are reported at fair value:
- SOP 78-9, Accounting for Investments in Real Estate Ventures
- EITF Issue No. 03-16, “Accounting for Investments in Limited Liability Companies”
- FSP SOP 78-9-1, Interaction of AICPA Statement of Position 78-9 and EITF Issue No. 04-5
The guidance in this FSP should be applied to fiscal years beginning after June 15, 2008, and to interim periods therein. The FSP is available in full at http://www.fasb.org/pdf/fsp_sop94-3-1&aag_hco-1.pdf. |
