A post-implementation review of the Financial Accounting Standards Board’s standard addressing ownership interests within a company’s subsidiary found that the 2007 standard has achieved its purpose and provides useful information to users of financial statements, although there is some room for improvement.

That was the conclusion of a report on FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements. Statement 160 establishes accounting and reporting standards for noncontrolling interests in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated organization that should be reported as equity in the consolidated financial statements.

“The PIR report on Statement 160 tells us that, overall, the standard on noncontrolling interests is useful to investors,” said FASB chairman Russell G. Golden in a statement. “That said, the report did identify areas of improvement—most notably in the allocation of net income or loss between a parent company and the noncontrolling interest. The FASB plans to conduct outreach with stakeholders to understand if there are any cost-effective solutions that also reduce complexity without significantly reducing the usefulness of the information.”

The post-implementation review team developed its final report based on input from financial statement users, preparers, auditors, and regulators. Based on its research, the review team concluded that Statement 160 adequately resolved the issues underlying its stated need. In particular, it eliminated the diversity associated with reporting noncontrolling interests in the financial statements, by requiring them to be recognized as a component of shareholders’ equity. The standard also improved the relevance of reported financial information on noncontrolling interests by providing clear guidance on how to account for changes in a parent’s ownership interest in a subsidiary, including guidance on accounting for deconsolidation of a subsidiary. In addition, the review also found that the standard converged the accounting for noncontrolling interests with International Accounting Standard 27, Consolidated and Separate Financial Statements.

Information resulting from the application of Statement 160 generally provides investors with useful information, according to the report. Investors factor information about noncontrolling interests in their analyses of a company’s projected future cash flows. By having information about the financial statement effects of a subsidiary in financial statements segregated by the parent and the noncontrolling interest holder(s), investors are able to more quickly determine the financial effects of a subsidiary on the parent company.

Statement 160 generally is understandable, the review team found, and it can be applied as intended. The standard enables information about noncontrolling information to be reported reliably for both public and private companies. Input received from some stakeholders indicated that the requirements for allocating net income or loss of a subsidiary between the parent and the noncontrolling interest holders are insufficient and difficult to apply in situations in which the equity structure of a subsidiary is complex and net income or loss is not shared proportionally.

The changes made to financial and operating practices as a result of Statement 160 were not significant or unexpected, according to the report. These changes were consistent with both FASB’s and stakeholders’ expectations.

There were no significant unanticipated consequences as a result of Statement 160, the review team found. Overall, both implementation and ongoing compliance costs associated with Statement 160 were not significant and were consistent with both FASB’s and stakeholders’ expectations.

The PIR team had no significant standard-setting process recommendations as a result of the review.
The review of Statement 160 was undertaken by an independent team of the Financial Accounting Foundation, the parent organization of FASB and the Governmental Accounting Standards Board. \

The team’s formal report is available here. FASB’s response letter to the report is available here.
With the completion of the FAS 160 review, the PIR team plans to begin a review of FASB Statement No. 128, Earnings per Share, in the next few weeks.

Stakeholders who would like the opportunity to participate in upcoming PIRs can register online here. For more information on the PIR process, visit the FAF’s Web site.

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