The Financial Accounting Standards Board (FASB) has stepped back from a move to reorganize its guidance on consolidation accounting related to how companies treat multiple entities but asked the staff to conduct research into a new single consolidation model. 

Known as Topic 812, the board at a mid-month meeting agreed with a staff recommendation to take the guidance reorganization project off the technical agenda that typically tees up issues for standards setting and updates. The move comes after FASB last year sought public comment on the initiative to make accounting guidance on consolidation easier to understand as well as to address the complexity of determining whether models for variable interest entities (VIEs) or voting interest entities (VOEs) should be applied.   

After reviewing stakeholder feedback, FASB project manager Chris Bohdan told the board at an April 20 meeting that the staff determined new guidance would be costly for preparers and practitioners who would need to revise past consolidation assessments and for practitioners needing to revise published interpretive guidance. The expense wouldn’t likely be justified given the expectation that the issue would remain conceptually complex and still leave many practitioners needing interpretive help, he said. 

Instead, it would be more productive to move toward a “single model” treatment of entities that could potentially replace the current approach, Bohdan told the board. Board chair Richard Jones subsequently initiated a new research project to explore whether the single consolidation model could be developed. 

More order needed

Technical agenda projects are active standard setting initiatives in which board decisions are intended to be incorporated into a final standard, according to FASB spokesperson Christine Klimek. The research agenda, established by the FASB chair, includes projects that may be ultimately added to the technical agenda if consensus is reached by a board majority, she wrote in an email.  

Others at the meeting also expressed concern about the need for FASB guidance to be more clear. James Kroeker, FASB vice chairman, said he was concerned that the current treatment was sometimes difficult for smaller or private companies that aren't as familiar with it.

“Directionally we don’t hear outcome concerns but what we do hear is the language is impenetrable to somebody who is not a national office expert, who doesn’t spend significant amounts of time on it,” he said. “I think that’s a weak spot for us.” 

Jones also expressed concern that the current approach to the consolidation issue was a “a blunt tool” even as he viewed consolidation as one of the most important decisions made in accounting. While FASB already has a number of issues on its agenda, Jones said the single model issue merits more research.

“We can bring some order to this area where I think we’re hearing very clearly that order is needed,” he said.