For WizardKim-DPR1W5

Week 5 Discussion Post 1st Response:

Instructions: Respond to the post below from your fellow classmate. Any opinions, or anything you would like to add to discuss about their post. Must be three substantial paragraphs, and three references.

In this week’s reading, we are introduced to the concept of a noncontrolling interest within a subsidiary investment. The concepts related with noncontrolling interest have been around for years, and yet they still pose many challenges to the accounting profession (Coleman et al., 2019). The complexity in the treatment of noncontrolling interest has led to a lot of diversity within the accounting profession. 

            In order to gain a better understanding of what a noncontrolling interest is, one should first look at the definition of the term. According to the Financial Accounting Standards Board, noncontrolling interest, also known as the minority interest, is the percentage of equity in a subsidiary not traceable, directly or indirectly, to the parent company (Summary of Statement No. 160, n.d.). In an effort to reduce the amount of diversity surrounding noncontrolling interest, the FASB issued the FASB Statement 160. The FASB Statement 160 aims to improve the overall relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards. The issuance of FASB Statement 160 requires the amount of consolidated net income due to the parent and to the noncontrolling interest be clearly presented on the face of the consolidated income statement (Summary of Statement No. 160, n.d.). Before the issuance FASB Statement 160, there was very little guidance on the reporting of noncontrolling interests. So-called minority interests were reported in the consolidated statement of financial position as liabilities. By issuing this statement, the FASB believes they have helped improve comparability by removing diversity (Summary of Statement No. 160, n.d.).

            The FASB Statement 160 changes the way the consolidated income statement are presented. Consolidated net income is now required to be reported at the amounts that include both the parent and the noncontrolling interest. It also requires the disclosure, on the face of the consolidated income statement, the amounts of consolidated net income due to the parent and to the noncontrolling interest (Summary of Statement No. 160, n.d.). Noncontrolling interests are measured at their full fair value under US GAAP (Schmid et al., 2014). However, IFRS allows for two valuation options, which could result in differences in the carrying values of noncontrolling interests. Companies have the option, on an individual basis, to measure noncontrolling interests at their proportion of the fair value of the identifiable net assets or at full fair value (Schmid et al., 2014).

Reference:

Coleman, B., Carpenter, A., Comerford, R., Moynihan, R., & Winters, A. (2019). A Roadmap to Accounting for Noncontrolling Interests. Roadmap Series . https://www2.deloitte.com/content/dam/Deloitte/us/Documents/audit/ASC/Roadmaps/us-aers-roadmap-noncontrolling-interest-2019.pdf.

Financial Accounting Standards Board. Summary of Statement No. 160. FASB, Financial Accounting Standards Board. https://www.fasb.org/summary/stsum160.shtml.

Schmid, D., DeSmith, S., & Klein, G. (2014, October). IFRS and US GAAP: similarities and differences. http://www.agn.org/agn/Intl/IFRS/Materials/C-IFRS.pdf.