A complete guide to financial consolidation under ASC 810

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ASC 810 is the US GAAP accounting standard covering financial consolidation for multi-entities. It’s like the standard implemented by the International Accounting Standards Board (IASB), IFRS 10, but differs in a few key areas. This blog will help your team gain a better understanding of how to maintain compliance when preparing consolidated financial statements. 

 

The objective of ASC 810 for consolidated financial statements 

 

The purpose of consolidated financial statements is to present, primarily for the benefit of the owners and creditors or the parent, the results of operations and the financial position of a parent and all its subsidiaries as if the consolidated group were a single economic entity. There is a presumption that consolidated financial statements are more meaningful than separate financial statements and that they are usually necessary for a fair presentation when one of the entities in the consolidated group directly or indirectly has a controlling financial interest in the other entities. (810-10-10-1). 

 

Assessing entities for financial consolidation 

 

Under ASC 810, there exist two models to evaluate each subsidiary for consolidation: the Variable Interest Entity (VIE) Model and the Voting Interest Model (VIM). 

ASC 810 decision tree

Under the VIE model, the reporting entity displays a controlling financial interest in a VIE if it has both: 

  1. The power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. 
  2. The obligation to absorb the losses or the rights to receive benefits that could be significant to the VIE. 

Under the VIM, a majority voting interest in another entity correlates with a controlling financial interest. However, exceptions exist, like agreements between shareholders or contractual provisions, that afford the power to control even when the entity holds less than 50% voting interest. 

Read the full blog for an in-depth look at ASC 810, complete with flow charts to help you assess entities for financial consolidation using the VIE model and the VIM.

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