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Consolidation

Date recorded:

The Board participated in an education session on the application of the proposed consolidation framework to structured entities (for example, special purpose entities) held by the consolidation project team. The purpose of this session was to receive feedback from the Board members about the principles for assessing the rights one entity has in another. A further request for input was in relation to the approach presented was helpful for an entity to decide if it should recognise all assets and liabilities of another entity (that is, consolidate) or only those assets and liabilities that it holds a direct interest in.

This was an education session and accordingly no decisions were made.

Although the session was educative, the Board had considerable discussion on certain aspects of the two Agenda Papers provided by the staff (which can be downloaded from the IASB's website).

In relation to the first Agenda Paper, the staff presented existing guidance on the accounting treatment for structured entities (namely, SIC-12 and FIN 46R) and possible other approaches. The staff also presented a proposed approach to consolidation of such entities. This approach would focus on a 'single control model' and not on a 'risk and rewards model', but this model would often involve assessing control by analysing risks and rewards. Some Board members saw no fundamental difference in this approach to a 'pure' risks and rewards approach. The staff pointed out that the ultimate goal is the recognition of all assets it controls and all obligations for which it is responsible, which is similar to the approach taken in ED 9 Joint Arrangements.

The second Agenda Paper presented specific (and simplified) fact patterns to show how the proposed consolidation model could be applied. The Board had some discussions on the examples presented and concluded that they do not extract the distinguishing feature that triggers consolidation or the partial recognition of assets and liabilities. Some Board members also noted that they had difficulties in identifying a principle in the examples. A number of Board members also expressed concerns that the examples might be too simplistic. The Board also suggested other fact patterns that the staff might want to consider in the course of the project.

The staff informed the Board that it will bring the issues back to the Board for consideration at a future meeting.