The Financial Accounting Standards Board is brushing up its fairly new rules on consolidations to address concerns that investment managers or others acting as agents for their clients might get caught up in the guidance and treated as if they are owners.
FASB has proposed an accounting standards update that would establish criteria for a reporting entity to follow to determine whether it is using its decision making power as a principal with an ownership interest or as an agent for someone else. Accounting rules adopted in 2009 require companies to consider their power to direct the activities of an entity and the benefit they derive from such an entity as the key criteria for determining whether that entity must be consolidated, or added to the parent company’s financial statements. FASB developed the rule to bring onto corporate balance sheets special-purpose or variable-interest entities that carried risk but remained hidden to investors.
