How NFP General Partners Should Apply the Consolidation Guidance to For-Profit Limited Partnership or Similar Entity

On August 3, 2016 the FASB Board issued a proposed Accounting Standards Update (ASU) that would amend the consolidation guidance in Subtopic 958-810, Not-for-Profit Entities— Consolidation, to clarify when an NFP that is a general partner should consolidate a for-profit limited partnership or similar legal entity once the amendments in Accounting Standards Update No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, become effective. The comment period deadline on the proposed Update is October 3, 2016.

Currently, GAAP requires an NFP that is a general partner of a for-profit limited partnership or similar legal entity to apply the consolidation guidance in Subtopic 810-20, Consolidation—Control of Partnerships and Similar Entities, unless that partnership interest is reported at fair value in accordance with certain other guidance. The amendments in ASU 2015-02 superseded the guidance in Subtopic 810-20 and added new guidance for limited partnerships and similar legal entities to the general consolidation guidance in Subtopic 810-10, Consolidation—Overall. Therefore, once the amendments in Update 2015-02 are effective, GAAP will require an NFP that is a general partner of a for-profit limited partnership or similar legal entity to apply the general consolidation guidance in Subtopic 810-10.

Since the issuance of ASU 2015-02, many stakeholders have noted that the guidance that was added to general consolidation guidance in Subtopic 810-10 presumes that an entity would first navigate through the variable interest entity (VIE) consolidation guidance before applying the general consolidation guidance. However, NFPs generally are not included within the scope of the VIE consolidation guidance. Therefore, it was noted that when an NFP navigates directly to the general consolidation guidance in Subtopic 810-10, the guidance does not address when a general partner should consolidate a for-profit limited partnership, but rather when a limited partner should consolidate the partnership.

The amendments in the Proposed ASU would maintain how NFP general partners currently apply the consolidation guidance in Subtopic 810-20 by including that guidance within Subtopic 958-810. Therefore, under the proposed amendments, NFPs that are general partners would continue to be presumed to control a for-profit limited partnership, regardless of the extent of their ownership interest, unless that presumption is overcome. The presumption would be overcome if the limited partners have either substantive kick-out rights or substantive participating rights.

An entity that elected to early adopt the amendments in Update 2015-02 would be able to apply the amendments in this proposed Update using either (1) a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption or (2) a retrospective approach. The Board will determine the effective date for entities that elected to early adopt the amendments in Update 2015-02 after it considers stakeholders’ feedback on the proposed amendments. An entity that has not yet adopted the amendments in Update 2015-02 would be required to adopt the amendments in this proposed Update at the same time that it adopts the amendments in Update 2015-02 and to apply the same transition method elected for the application of Update 2015-02.

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