Comparison between U.S. GAAP and International ... - Grant Thornton

Comparison between U.S. GAAP and International Financial Reporting Standards 104
IFRS
so that a single control model can be applied to all
entities. The Board has completed its deliberations,
other than the effective date of the final standard, and
anticipates issuing a final standard in the first quarter of
2011.
After considering input from constituents on the IASB’s
proposed consolidation model, the FASB has decided
not to proceed with an exposure draft that is consistent
with the IASB’s published requirements. The FASB
plans to issue an exposure draft that would amend the
guidance for distinguishing whether a decision maker
arrangement represents an agent or principal
relationship.
The IASB and the FASB are also working on a joint
project to provide guidance for assessing whether an
entity is an investment company and how to measure
those investments.
Control is defined as “the power to govern the financial
and operating policies so as to obtain economic benefits
from its activities” (IAS 27.4). It is presumed to exist
when the parent owns, directly or indirectly through
subsidiaries, more than half the voting power of an entity
unless, in exceptional circumstances, it can be
demonstrated that such ownership does not constitute
control. However, control can also exist where the parent
owns half or less of the voting power when there is:
• Power over more than half of the voting rights
through an agreement with other investors
• Power to govern the financial and operating policies
under statute or an agreement
• Power to appoint or remove the majority of board
members or equivalent governing body
• Power to cast the majority of votes at board
meetings or equivalent governing body (IAS 27.13)
The existence and effect of potential voting rights that
are currently exercisable or convertible are considered in
assessing an entity's power to govern another entity.
Management intent or financial ability to exercise or
convert is not considered (IAS 27.14-15).
U.S. GAAP
U.S. GAAP focuses on a controlling financial interest as
opposed to the concept of control under IFRS. The usual
condition for a controlling financial interest is ownership of
a majority voting interest – ownership by one entity,
directly or indirectly, of more than fifty percent of the
outstanding voting shares of another entity (voting
interest model) (ASC 810-10-15-8 and 15-10). Unlike
IFRS, potential voting rights are not considered.
A majority ownership in some entities does not convey a
controlling financial interest. For such entities, called
variable interest entities (VIEs), the guidance in
ASC 810-10, “Variable Interest Entities” subsections shall
be applied to determine if a reporting entity’s variable
interests give it a controlling financial interest in the VIE.
A reporting entity that holds a direct or indirect (explicit or
implicit) variable interest in a legal entity must determine
whether the guidance in the “Variable Interest Entities”
subsections of ASC 810-10 applies to that legal entity
before considering other consolidation guidance.
However, the recognition and measurement provisions in
ASC 810-10 are indefinitely deferred for certain
investment funds (ASC 810-10-65-2). Please refer to
Section 8.3, “Special purpose entities/variable interest
entities” for a discussion of special purpose entities and
variable interest entities. IFRS address special purpose
entities (SPEs) but not variable interest entities which is a
broader concept than SPEs. Therefore, differences could
occur.
U.S. GAAP also provides that a general partner in a
limited partnership is presumed to control the limited
partnership regardless of the general partner’s ownership
interest. That presumption can be overcome if the limited
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