ACCT 5130 – Advanced Financial Accounting

As we discussed in class, the evolution of variable interest entities and how they are accounted for continues.  These changes will be the focal point of your paper.  The idea is to have your research the accounting literature and then explain what has changed.  You can go straight to the Accounting Standards Updates on the FASB website for this assignment, but I suggest you supplement your reading with implementation or evaluations of each ASU from write-ups you can typically find with national firms.  Deloitte, PWC, E&Y, KPMG, BDO, etc.

 

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As we discussed, the primary accounting standard that addresses consolidations (including variable interest entities) is ASC 810.  I have included the history below for your reference.  ARB 51, FIN 46(R) and SFAS 167 have been codified into ASC 810.  The 4 noted accounting standards updates (ASU) are amendments to ASC 810.  Each of these have been provided for you.  As you read through them, you will see several flow charts/decision trees as to when to consolidate and when to not.  Not looking for diagrams in this paper, but those are good visual aids for understanding how the decision is made as to whether or not to consolidate.

 

Accounting Standard References:

  • ARB 51, Consolidated Financial Statements
  • FIN 46(R), Consolidation of Variable Interest Entities
  • SFAS 167, Amendments to FIN 46(R)
  • ASU No. 2014-7 Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements – a consensus of the Private Company Council
  • ASU No. 2015-02 Consolidation (Topic 810): Amendments to the Consolidation Analysis
  • ASU No. 2016-17 Consolidation (Topic 810): Interests Held Through Related Parties that are Under Common Control
  • ASU No. 2018-17 Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities

 

Requirements

 

  1. For each ASU, provide a summary of the document. You can follow the general flow of the ASU documents.

 

  1. Why is the FASB issuing this accounting standards update?
  2. Who is affected by the amendments in the update?
  3. What are the main provisions?
  4. How do the main provisions differ from previous GAAP and why are they an improvement?
  5. When was it effective? Are the dates different for public versus private companies?

 

  1. To demonstrate that you understand the most recent developments, read the following scenario and tell me what you would recommend:

 

Scenario

Scenario

Warhawk, Inc. is a privately held company with a related party owned by the same owners, but not directly.  The sole purpose of the company is to own real estate that is exclusively leased by Warhawk, Inc.  The real estate company has been previously identified as a variable interest entity for which Warhawk, Inc. is the primary beneficiary and has been consolidated for a number of years.  The owners would like to not consolidate this entity and understand that possibly under new accounting guidance that they may not have to.  Using the standards we have just looked at, how would you advise them?

 

  1. Lastly, tell me what you think. Why are these improvements or are they actually?  We talked about the difficulties encountered and the pushback on the part of financial statement preparers.  Do these provide the requested relief?

 

 

 

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