The FASB recently issued ASU 2017-02, Not-for-Profit Entities—Consolidation (Subtopic 958-810): Clarifying When a Not-for-Profit Entity That Is a General Partner or a Limited Partner Should Consolidate a For-Profit Limited Partnership or Similar Entity. The primary provision of this update is to include within Subtopic 958-810, the consolidation guidance previously contained in Subtopic 810-20 prior to the amendments of ASU 2015-02.
Extant GAAP requires a Not-for-Profit entity that is a general partner of a for-profit limited partnership (or similar entity) to presume ownership of the limited partnership for purposes of considering consolidation. This presumption can only be overcome if the limited partners have either substantive kick-out rights or substantive participating rights. To be considered substantive, the kick-out rights would have to be exercisable by a simple majority vote of the limited partners’ voting interests. Such guidance is located in Subtopic 810-20. However, the amendments in ASU 2015-02 will supersede subtopic 810-20 once effective. To mitigate this issue, ASU 2017-02 includes consolidation guidance in subtopic 958-810 which mirrors what has been in Subtopic 810-20.
In addition, the terms kick-out rights, participating rights, and protective rights were added to the Glossary Section of Subtopic 958-810. These definitions are consistent with the amended terms of ASU 2015-02.
The effective date of ASU 2017-02 depends on whether an entity has early adopted the amendments in ASU 2015-02. If an entity has already early adopted ASU 2015-02 then the amendments from ASU 2017-02 are required to be applied retrospectively to all relevant prior periods beginning with the fiscal year in which ASU 2015-02 was initially implemented. If an entity has not early adopted the amendments of ASU 2015-02, then the provisions of ASU 2017-02 would be applied at the same time that the entity adopts ASU 2015-02, and the same transition method would be applied.
The full text of ASU 2017-02 is available here.
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