# ASC 810-10-15: Consolidation — Overall — 15 Scope and Scope Exceptions

Source: FASB Accounting Standards Codification, Basic View

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## ASC 810-10-15: 15 Scope and Scope Exceptions

[Read section](https://asc.understandingaccounting.org/asc/810/10/#15-scope-and-scope-exceptions)

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#### Overall Guidance

##### [810-10-15-1](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-1)

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The Scope Section of the Overall Subtopic establishes the pervasive scope for all Subtopics of the Consolidation Topic. Unless explicitly addressed within specific Subtopics, the following scope guidance applies to all Subtopics of the Consolidation Topic.

##### [810-10-15-2](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-2)

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The General Subsection of this Section establishes the pervasive scope for this Subtopic, with specific exceptions noted in the other Subsections of this Section.

#### Entities

##### [810-10-15-3](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-3)

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All reporting entities shall apply the guidance in the Consolidation Topic to determine whether and how to consolidate another entity and apply the applicable Subsection as follows:

1.  a
    
    If the reporting entity has an interest in an entity, it must determine whether that entity is within the scope of the Variable Interest Entities Subsections in accordance with paragraph [810-10-15-14](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-14). If that entity is within the scope of the Variable Interest Entities Subsections, the reporting entity should first apply the guidance in those Subsections. Paragraph [810-10-15-17](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-17) provides specific exceptions to applying the guidance in the Variable Interest Entities Subsections.
    
2.  b
    
    If the reporting entity has an interest in an entity that is not within the scope of the Variable Interest Entities Subsections and is not within the scope of the Subsections mentioned in paragraph [810-10-15-3(c)](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-3), the reporting entity should use only the guidance in the General Subsections to determine whether that interest constitutes a controlling financial interest.
    
3.  c
    
    If the reporting entity has a contractual management relationship with another entity that is not within the scope of the Variable Interest Entities Subsections, the reporting entity should use the guidance in the Consolidation of Entities Controlled by Contract Subsections to determine whether the arrangement constitutes a controlling financial interest.

##### [810-10-15-4](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-4)

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All [legal entities](https://asc.understandingaccounting.org/glossary/l/#legal-entity "Any legal structure used to conduct activities or to hold assets. Some examples of such structures are corporations, partnerships, limited liability companies, grantor trusts, and other trusts.") are subject to this Topic's evaluation guidance for consolidation by a reporting entity, with specific qualifications and exceptions noted below.

##### [810-10-15-5](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-5)

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The application of this Topic by [not-for-profit entities](https://asc.understandingaccounting.org/glossary/n/#not-for-profit-entity "An entity that possesses the following characteristics, in varying degrees, that distinguish it from a business entity: Contributions of significant amounts of resources from resource providers who do not expect commensurate or proportionate pecuniary return Operating purposes other than to provide goods or services at a profit Absence of ownership interests like those of business entities. Entities that clearly fall outside this definition include the following: All investor-owned entities Entities that provide dividends, lower costs, or other economic benefits directly and proportionately to their owners, members, or participants, such as mutual insurance entities, credit unions, farm and rural electric cooperatives, and employee benefit plans.") (NFPs) as defined in Topic 958 is subject to additional guidance in Subtopic 958-810.

##### [810-10-15-6](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-6)

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The guidance in this Topic applies to all reporting entities, with specific qualifications and exceptions noted below.

##### [810-10-15-7](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-7)

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[Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/).

##### [810-10-15-8](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-8)

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For legal entities other than limited partnerships, the usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, of more than 50 percent of the outstanding voting shares of another entity is a condition pointing toward consolidation. The power to control may also exist with a lesser percentage of ownership, for example, by contract, lease, agreement with other stockholders, or by court decree.

##### [810-10-15-8A](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-8A)

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Given the purpose and design of limited partnerships, [kick-out rights](https://asc.understandingaccounting.org/glossary/k/#kick-out-rights-voting-interest-entity-definition "The rights underlying the limited partner's or partners' ability to dissolve (liquidate) the limited partnership or otherwise remove the general partners without cause.") through voting interests are analogous to voting rights held by shareholders of a corporation. For limited partnerships, the usual condition for a controlling financial interest, as a general rule, is ownership by one limited partner, directly or indirectly, of more than 50 percent of the limited partnership's kick-out rights through voting interests. The power to control also may exist with a lesser percentage of ownership, for example, by contract, lease, agreement with partners, or by court decree.

##### [810-10-15-9](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-9)

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A majority-owned [subsidiary](https://asc.understandingaccounting.org/glossary/s/#subsidiary "An entity, including an unincorporated entity such as a partnership or trust, in which another entity, known as its parent, holds a controlling financial interest. (Also, a variable interest entity that is consolidated by a primary beneficiary.)") is an entity separate from its parent and may be a [variable interest entity](https://asc.understandingaccounting.org/glossary/v/#variable-interest-entity "A legal entity subject to consolidation according to the provisions of the Variable Interest Entities Subsections of Subtopic 810-10.") (VIE) that is subject to consolidation in accordance with the Variable Interest Entities Subsections of this Subtopic. Therefore, a reporting entity with an explicit or implicit interest in a legal entity within the scope of the Variable Interest Entities Subsections shall follow the guidance in the Variable Interest Entities Subsections.

##### [810-10-15-10](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-10)

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A reporting entity shall apply consolidation guidance for entities that are not in the scope of the Variable Interest Entities Subsections (see the [Variable Interest Entities Subsection](https://asc.understandingaccounting.org/asc/810/10/#15-scope-and-scope-exceptions) of this Section) as follows:

1.  a
    
    All majority-owned subsidiaries—all entities in which a parent has a controlling financial interest—shall be consolidated. However, there are exceptions to this general rule.
    
    1.  1
        
        A majority-owned subsidiary shall not be consolidated if control does not rest with the majority [owner](https://asc.understandingaccounting.org/glossary/o/#owners "Used broadly to include holders of ownership interests (equity interests) of investor-owned entities, mutual entities, or not-for-profit entities. Owners include shareholders, partners, proprietors, or members or participants of mutual entities. Owners also include owner and member interests in the net assets of not-for-profit entities.")—for instance, if any of the following are present:
        
        1.  i
            
            The subsidiary is in legal reorganization
            
        2.  ii
            
            The subsidiary is in bankruptcy
            
        3.  iii
            
            The subsidiary operates under foreign exchange restrictions, controls, or other governmentally imposed uncertainties so severe that they cast significant doubt on the parent's ability to control the subsidiary.
            
        4.  iv
            
            In some instances, the powers of a shareholder with a majority voting interest or limited partner with a majority of kick-out rights through voting interests to control the operations or assets of the investee are restricted in certain respects by approval or veto rights granted to the noncontrolling shareholder or limited partner (hereafter referred to as noncontrolling rights). In paragraphs
            
            [810-10-25-2 through 25-14](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-2)
            
            , the term _noncontrolling shareholder_ refers to one or more noncontrolling shareholders and the terms _limited partner_ and _general partner_ refer to one or more limited or general partners. Those noncontrolling rights may have little or no impact on the ability of a shareholder with a majority voting interest or limited partner with a majority of kick-out rights through voting interests to control the investee's operations or assets, or, alternatively, those rights may be so restrictive as to call into question whether control rests with the majority owner.
            
        5.  v
            
            Control exists through means other than through ownership of a majority voting interest or a majority of kick-out rights through voting interests, for example as described in (c) through (e).
            
    2.  2
        
        A majority-owned subsidiary in which a parent has a controlling financial interest shall not be consolidated if the parent is a broker-dealer within the scope of Topic 940 and control is likely to be temporary.
        
    3.  3
        
        [Subparagraph superseded by Accounting Standards Update No. 2013-08](https://asc.understandingaccounting.org/updates/asu-2013-08/).
        
2.  b
    
    [Subparagraph superseded by Accounting Standards Update No. 2015-02](https://asc.understandingaccounting.org/updates/asu-2015-02/).
    
3.  c
    
    Subtopic 810-30 shall be applied to determine the consolidation status of a research and development arrangement.
    
4.  d
    
    The Consolidation of Entities Controlled by Contract Subsections of this Subtopic shall be applied to determine whether a contractual management relationship represents a controlling financial interest.
    
5.  e
    
    Paragraph [710-10-45-1](https://asc.understandingaccounting.org/asc/710/10/#710-10-45-1) addresses the circumstances in which the accounts of a rabbi trust that is not a VIE (see the Variable Interest Entities Subsections for guidance on VIEs) shall be consolidated with the accounts of the employer in the financial statements of the employer.

##### [810-10-15-11](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-11)

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A difference in fiscal periods of a parent and a subsidiary does not justify the exclusion of the subsidiary from consolidation.

##### [810-10-15-12](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-12)

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The guidance in this Topic does not apply in any of the following circumstances:

1.  a
    
    An employer shall not consolidate an employee benefit plan subject to the provisions of Topic 712 or 715.
    
2.  b
    
    [Subparagraph superseded by Accounting Standards Update No. 2009-16](https://asc.understandingaccounting.org/updates/asu-2009-16/).
    
3.  c
    
    [Subparagraph superseded by Accounting Standards Update No. 2009-16](https://asc.understandingaccounting.org/updates/asu-2009-16/).
    
4.  d
    
    Except as discussed in paragraph [946-810-45-3](https://asc.understandingaccounting.org/asc/810/946/#810-946-45-3), an investment company within the scope of Topic 946 shall not consolidate an investee that is not an investment company.
    
5.  e
    
    A reporting entity shall not consolidate a governmental organization and shall not consolidate a financing entity established by a governmental organization unless the financing entity meets both of the following conditions:
    
    1.  1
        
        Is not a governmental organization
        
    2.  2
        
        Is used by the business entity in a manner similar to a VIE in an effort to circumvent the provisions of the Variable Interest Entities Subsections.
        
6.  f
    
    A reporting entity shall not consolidate a legal entity that is required to comply with or operate in accordance with requirements that are similar to those included in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds.
    
    1.  1
        
        A legal entity that is not required to comply with Rule 2a-7 of the Investment Company Act of 1940 qualifies for this exception if it is similar in its purpose and design, including the risks that the legal entity was designed to create and pass through to its investors, as compared with a legal entity required to comply with Rule 2a-7.
        
    2.  2
        
        A reporting entity subject to this scope exception shall disclose any explicit arrangements to provide financial support to legal entities that are required to comply with or operate in accordance with requirements that are similar to those included in Rule 2a-7, as well as any instances of such support provided for the periods presented in the performance statement. For purposes of applying this disclosure requirement, the types of support that should be considered include, but are not limited to, any of the following:
        
        1.  i
            
            Capital contributions (except pari passu investments)
            
        2.  ii
            
            Standby letters of credit
            
        3.  iii
            
            Guarantees of principal and interest on debt investments held by the legal entity
            
        4.  iv
            
            Agreements to purchase financial assets for amounts greater than fair value (for instance, at amortized cost or par value when the financial assets experience significant credit deterioration)
            
        5.  v
            
            Waivers of fees, including management fees.

### Variable Interest Entities

#### Overall Guidance

##### [810-10-15-13](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-13)

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The Variable Interest Entities Subsections follow the same Scope and Scope Exceptions as outlined in the General Subsection of this Subtopic (see paragraph [810-10-15-1](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-1)), with specific transaction qualifications and exceptions noted below.

##### [810-10-15-13A](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-13A)

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For purposes of applying the Variable Interest Entities Subsections, only substantive terms, transactions, and arrangements, whether contractual or noncontractual, shall be considered. Any term, transaction, or arrangement shall be disregarded when applying the provisions of the Variable Interest Entities Subsections if the term, transaction, or arrangement does not have a substantive effect on any of the following:

1.  a
    
    A legal entity's status as a [variable interest entity](https://asc.understandingaccounting.org/glossary/v/#variable-interest-entity "A legal entity subject to consolidation according to the provisions of the Variable Interest Entities Subsections of Subtopic 810-10.") (VIE)
    
2.  b
    
    A reporting entity's power over a VIE
    
3.  c
    
    A reporting entity's obligation to absorb losses or its right to receive benefits of the [legal entity](https://asc.understandingaccounting.org/glossary/l/#legal-entity "Any legal structure used to conduct activities or to hold assets. Some examples of such structures are corporations, partnerships, limited liability companies, grantor trusts, and other trusts.").

##### [810-10-15-13B](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-13B)

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Judgment, based on consideration of all the facts and circumstances, is needed to distinguish substantive terms, transactions, and arrangements from nonsubstantive terms, transactions, and arrangements. The purpose and design of legal entities shall be considered when performing this assessment.

#### Entities

##### [810-10-15-14](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-14)

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A legal entity shall be subject to consolidation under the guidance in the Variable Interest Entities Subsections if, by design, any of the following conditions exist. (The phrase _by design_ refers to legal entities that meet the conditions in this paragraph because of the way they are structured. For example, a legal entity under the control of its equity investors that originally was not a VIE does not become one because of operating losses. The design of the legal entity is important in the application of these provisions.)

1.  a
    
    The total equity investment (equity investments in a legal entity are interests that are required to be reported as equity in that entity's financial statements) at risk is not sufficient to permit the legal entity to finance its activities without additional [subordinated financial support](https://asc.understandingaccounting.org/glossary/s/#subordinated-financial-support "Variable interests that will absorb some or all of a variable interest entity's (VIE's) expected losses.") provided by any parties, including equity holders. For this purpose, the total equity investment at risk has all of the following characteristics:
    
    1.  1
        
        Includes only equity investments in the legal entity that participate significantly in profits and losses even if those investments do not carry voting rights
        
    2.  2
        
        Does not include equity interests that the legal entity issued in exchange for subordinated interests in other VIEs
        
    3.  3
        
        Does not include amounts provided to the equity investor directly or indirectly by the legal entity or by other parties involved with the legal entity (for example, by fees, charitable contributions, or other payments), unless the provider is a [parent](https://asc.understandingaccounting.org/glossary/p/#parent "An entity that has a controlling financial interest in one or more subsidiaries. (Also, an entity that is the primary beneficiary of a variable interest entity.)"), [subsidiary](https://asc.understandingaccounting.org/glossary/s/#subsidiary "An entity, including an unincorporated entity such as a partnership or trust, in which another entity, known as its parent, holds a controlling financial interest. (Also, a variable interest entity that is consolidated by a primary beneficiary.)"), or affiliate of the investor that is required to be included in the same set of [consolidated financial statements](https://asc.understandingaccounting.org/glossary/c/#consolidated-financial-statements "The financial statements of a consolidated group of entities that include a parent and all its subsidiaries presented as those of a single economic entity.") as the investor
        
    4.  4
        
        Does not include amounts financed for the equity investor (for example, by loans or guarantees of loans) directly by the legal entity or by other parties involved with the legal entity, unless that party is a parent, subsidiary, or affiliate of the investor that is required to be included in the same set of consolidated financial statements as the investor.
        
    
    Paragraphs
    
    [810-10-25-45 through 25-47](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-45)
    
    discuss the amount of the total equity investment at risk that is necessary to permit a legal entity to finance its activities without additional subordinated financial support.
    
2.  b
    
    As a group the holders of the equity investment at risk lack any one of the following three characteristics:
    
    1.  1
        
        The power, through voting rights or similar rights, to direct the activities of a legal entity that most significantly impact the entity's economic performance.
        
        1.  i
            
            For legal entities other than limited partnerships, investors lack that power through voting rights or similar rights if no [owners](https://asc.understandingaccounting.org/glossary/o/#owners "Used broadly to include holders of ownership interests (equity interests) of investor-owned entities, mutual entities, or not-for-profit entities. Owners include shareholders, partners, proprietors, or members or participants of mutual entities. Owners also include owner and member interests in the net assets of not-for-profit entities.") hold voting rights or similar rights (such as those of a common shareholder in a corporation). Legal entities that are not controlled by the holder of a majority voting interest because of noncontrolling shareholder veto rights (participating rights) as discussed in paragraphs
            
            [810-10-25-2 through 25-14](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-2)
            
            are not VIEs if the holders of the equity investment at risk as a group have the power to control the entity and the equity investment meets the other requirements of the Variable Interest Entities Subsections.
            
            1.  01
                
                If no owners hold voting rights or similar rights (such as those of a common shareholder in a corporation) over the activities of a legal entity that most significantly impact the entity's economic performance, [kick-out rights](https://asc.understandingaccounting.org/glossary/k/#kick-out-rights-vie-definition "The ability to remove the entity with the power to direct the activities of a VIE that most significantly impact the VIE's economic performance or to dissolve (liquidate) the VIE without cause.") or [participating rights](https://asc.understandingaccounting.org/glossary/p/#participating-rights-vie-definition "The ability to block or participate in the actions through which an entity exercises the power to direct the activities of a VIE that most significantly impact the VIE's economic performance. Participating rights do not require the holders of such rights to have the ability to initiate actions.") (according to their VIE definitions) held by the holders of the equity investment at risk shall not prevent interests other than the equity investment from having this characteristic unless a single equity holder (including its related parties and de facto agents) has the unilateral ability to exercise such rights. Alternatively, interests other than the equity investment at risk that provide the holders of those interests with kick-out rights or participating rights shall not prevent the equity holders from having this characteristic unless a single reporting entity (including its related parties and de facto agents) has the unilateral ability to exercise those rights. A [decision maker](https://asc.understandingaccounting.org/glossary/d/#decision-maker "An entity or entities with the power to direct the activities of another legal entity that most significantly impact the legal entity's economic performance according to the provisions of the Variable Interest Entities Subsections of Subtopic 810-10.") also shall not prevent the equity holders from having this characteristic unless the fees paid to the decision maker represent a variable interest based on paragraphs
                
                [810-10-55-37 through 55-38](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-37)
                
                .
                
        2.  ii
            
            For limited partnerships, partners lack that power if neither (01) nor (02) below exists. The guidance in this subparagraph does not apply to entities in industries (see paragraphs [910-810-45-1](https://asc.understandingaccounting.org/asc/810/910/#810-910-45-1) and [932-810-45-1](https://asc.understandingaccounting.org/asc/810/932/#810-932-45-1)) in which it is appropriate for a general partner to use the pro rata method of consolidation for its investment in a limited partnership (see paragraph [810-10-45-14](https://asc.understandingaccounting.org/asc/810/10/#810-10-45-14)).
            
            1.  01
                
                A simple majority or lower threshold of limited partners (including a single limited partner) with equity at risk is able to exercise substantive [kick-out rights](https://asc.understandingaccounting.org/glossary/k/#kick-out-rights-voting-interest-entity-definition "The rights underlying the limited partner's or partners' ability to dissolve (liquidate) the limited partnership or otherwise remove the general partners without cause.") (according to their voting interest entity definition) through voting interests over the general partner(s).
                
                1.  A
                    
                    For purposes of evaluating the threshold in (01) above, a general partner's kick-out rights held through voting interests shall not be included. Kick-out rights through voting interests held by entities under common control with the general partner or other parties acting on behalf of the general partner also shall not be included.
                    
            2.  02
                
                Limited partners with equity at risk are able to exercise substantive [participating rights](https://asc.understandingaccounting.org/glossary/p/#participating-rights-voting-interest-entity-definition "Participating rights allow the limited partners or noncontrolling shareholders to block or participate in certain significant financial and operating decisions of the limited partnership or corporation that are made in the ordinary course of business. Participating rights do not require the holders of such rights to have the ability to initiate actions.") (according to their voting interest entity definition) over the general partner(s).
                
            3.  03
                
                For purposes of (01) and (02) above, evaluation of the substantiveness of participating rights and kick-out rights shall be based on the guidance included in paragraphs [810-10-25-2 through 25-14C](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-2).
                
    2.  2
        
        The obligation to absorb the [expected losses](https://asc.understandingaccounting.org/glossary/e/#expected-losses "A legal entity that has no history of net losses and expects to continue to be profitable in the foreseeable future can be a variable interest entity (VIE). A legal entity that expects to be profitable will have expected losses. A VIE's expected losses are the expected negative variability in the fair value of its net assets exclusive of variable interests and not the anticipated amount or variability of the net income or loss.") of the legal entity. The investor or investors do not have that obligation if they are directly or indirectly protected from the expected losses or are guaranteed a return by the legal entity itself or by other parties involved with the legal entity. See paragraphs
        
        [810-10-25-55 through 25-56](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-55)
        
        and Example 1 (see paragraph [810-10-55-42](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-42)) for a discussion of expected losses.
        
    3.  3
        
        The right to receive the [expected residual returns](https://asc.understandingaccounting.org/glossary/e/#expected-residual-returns "A variable interest entity's (VIE's) expected residual returns are the expected positive variability in the fair value of its net assets exclusive of variable interests.") of the legal entity. The investors do not have that right if their return is capped by the legal entity's governing documents or arrangements with other variable interest holders or the legal entity. For this purpose, the return to equity investors is not considered to be capped by the existence of outstanding stock options, convertible debt, or similar interests because if the options in those instruments are exercised, the holders will become additional equity investors.
        
    
    If interests other than the equity investment at risk provide the holders of that investment with these characteristics or if interests other than the equity investment at risk prevent the equity holders from having these characteristics, the entity is a VIE.
    
3.  c
    
    The equity investors as a group also are considered to lack the characteristic in (b)(1) if both of the following conditions are present:
    
    1.  1
        
        The voting rights of some investors are not proportional to their obligations to absorb the expected losses of the legal entity, their rights to receive the expected residual returns of the legal entity, or both.
        
    2.  2
        
        Substantially all of the legal entity's activities (for example, providing financing or buying assets) either involve or are conducted on behalf of an investor that has disproportionately few voting rights. This provision is necessary to prevent a [primary beneficiary](https://asc.understandingaccounting.org/glossary/p/#primary-beneficiary "An entity that consolidates a variable interest entity (VIE). See paragraphs 810-10-25-38 through 25-38J for guidance on determining the primary beneficiary.") from avoiding consolidation of a VIE by organizing the legal entity with nonsubstantive voting interests. Activities that involve or are conducted on behalf of the related parties of an investor with disproportionately few voting rights shall be treated as if they involve or are conducted on behalf of that investor. The term _related parties_ in this paragraph refers to all parties identified in paragraph [810-10-25-43](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-43), except for de facto agents under paragraph [810-10-25-43(d)](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-43).
        
    
    For purposes of applying this requirement, reporting entities shall consider each party's obligations to absorb expected losses and rights to receive expected residual returns related to all of that party's interests in the legal entity and not only to its equity investment at risk.

##### [810-10-15-15](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-15)

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Portions of legal entities or aggregations of assets within a [legal entity](https://asc.understandingaccounting.org/glossary/l/#legal-entity "Any legal structure used to conduct activities or to hold assets. Some examples of such structures are corporations, partnerships, limited liability companies, grantor trusts, and other trusts.") shall not be treated as separate entities for purposes of applying the Variable Interest Entities Subsections unless the entire entity is a VIE. Some examples are divisions, departments, branches, and pools of assets subject to liabilities that give the creditor no recourse to other assets of the entity. Majority-owned subsidiaries are legal entities separate from their parents that are subject to the Variable Interest Entities Subsections and may be VIEs.

##### [810-10-15-16](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-16)

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[Paragraph superseded by Accounting Standards Update No. 2014-10](https://asc.understandingaccounting.org/updates/asu-2014-10/).

##### [810-10-15-17](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-17)

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The following exceptions to the Variable Interest Entities Subsections apply to all legal entities in addition to the exceptions listed in paragraph [810-10-15-12](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-12):

1.  a
    
    [Not-for-profit entities](https://asc.understandingaccounting.org/glossary/n/#not-for-profit-entity "An entity that possesses the following characteristics, in varying degrees, that distinguish it from a business entity: Contributions of significant amounts of resources from resource providers who do not expect commensurate or proportionate pecuniary return Operating purposes other than to provide goods or services at a profit Absence of ownership interests like those of business entities. Entities that clearly fall outside this definition include the following: All investor-owned entities Entities that provide dividends, lower costs, or other economic benefits directly and proportionately to their owners, members, or participants, such as mutual insurance entities, credit unions, farm and rural electric cooperatives, and employee benefit plans.") (NFPs) are not subject to the Variable Interest Entities Subsections, except that they may be related parties for purposes of applying paragraphs
    
    [810-10-25-42 through 25-44](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-42)
    
    . In addition, if an NFP is used by business reporting entities in a manner similar to a VIE in an effort to circumvent the provisions of the Variable Interest Entities Subsections, that NFP shall be subject to the guidance in the Variable Interest Entities Subsections.
    
2.  b
    
    Separate accounts of life insurance entities as described in Topic 944 are not subject to consolidation according to the requirements of the Variable Interest Entities Subsections.
    
3.  c
    
    A reporting entity with an interest in a VIE or potential VIE created before December 31, 2003, is not required to apply the guidance in the Variable Interest Entities Subsections to that VIE or legal entity if the reporting entity, after making an exhaustive effort, is unable to obtain the information necessary to do any one of the following:
    
    1.  1
        
        Determine whether the legal entity is a VIE
        
    2.  2
        
        Determine whether the reporting entity is the VIE's primary beneficiary
        
    3.  3
        
        Perform the accounting required to consolidate the VIE for which it is determined to be the primary beneficiary.
        
    
    This inability to obtain the necessary information is expected to be infrequent, especially if the reporting entity participated significantly in the design or redesign of the legal entity. The scope exception in this provision applies only as long as the reporting entity continues to be unable to obtain the necessary information. Paragraph [810-10-50-6](https://asc.understandingaccounting.org/asc/810/10/#810-10-50-6) requires certain disclosures to be made about interests in VIEs subject to this provision. Paragraphs
    
    [810-10-30-7 through 30-9](https://asc.understandingaccounting.org/asc/810/10/#810-10-30-7)
    
    provide transition guidance for a reporting entity that subsequently obtains the information necessary to apply the Variable Interest Entities Subsections to a VIE subject to this exception.
    
4.  d
    
    A legal entity that is deemed to be a [business](https://asc.understandingaccounting.org/glossary/b/#business "Paragraphs 805-10-55-3A805-10-55-4805-10-55-5805-10-55-6 and 805-10-55-8805-10-55-9 define what is considered a business.") need not be evaluated by a reporting entity to determine if the legal entity is a VIE under the requirements of the Variable Interest Entities Subsections unless any of the following conditions exist (however, for legal entities that are excluded by this provision, other generally accepted accounting principles \[GAAP\] should be applied):
    
    1.  1
        
        The reporting entity, its related parties (all parties identified in paragraph [810-10-25-43](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-43), except for de facto agents under paragraph [810-10-25-43(d)](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-43)), or both participated significantly in the design or redesign of the legal entity. However, this condition does not apply if the legal entity is an operating joint venture under joint control of the reporting entity and one or more independent parties or a franchisee.
        
    2.  2
        
        The legal entity is designed so that substantially all of its activities either involve or are conducted on behalf of the reporting entity and its related parties.
        
    3.  3
        
        The reporting entity and its related parties provide more than half of the total of the equity, subordinated debt, and other forms of subordinated financial support to the legal entity based on an analysis of the fair values of the interests in the legal entity.
        
    4.  4
        
        The activities of the legal entity are primarily related to securitizations or other forms of asset-backed financings or single-lessee leasing arrangements.
        
    
    A legal entity that previously was not evaluated to determine if it was a VIE because of this provision need not be evaluated in future periods as long as the legal entity continues to meet the conditions in (d).

##### [810-10-15-17A](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-17A)

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Effective as of: not established by retrieval timestamps.


[Paragraph superseded by Accounting Standards Update No. 2016-03](https://asc.understandingaccounting.org/updates/asu-2016-03/).

##### [810-10-15-17AA](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-17AA)

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[Paragraph superseded by Accounting Standards Update No. 2018-17](https://asc.understandingaccounting.org/updates/asu-2018-17/).

##### [810-10-15-17AB](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-17AB)

Pending content: no

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[Paragraph superseded by Accounting Standards Update No. 2018-17](https://asc.understandingaccounting.org/updates/asu-2018-17/).

#### Accounting Alternative for Entities under Common Control

##### [810-10-15-17AC](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-17AC)

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Paragraphs

[810-10-15-17AD through 15-17AF](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-17AD)

,

[810-10-50-2AG through 50-2AI](https://asc.understandingaccounting.org/asc/810/10/#810-10-50-2AG)

, and

[810-10-55-205AU through 55-205BF](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AU)

provide guidance for a [private company](https://asc.understandingaccounting.org/glossary/p/#private-company "An entity other than a public business entity, a not-for-profit entity, or an employee benefit plan within the scope of Topics 960 through 965 on plan accounting.") electing the accounting alternative for entities under common control in this Subtopic.

##### [810-10-15-17AD](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-17AD)

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A [legal entity](https://asc.understandingaccounting.org/glossary/l/#legal-entity "Any legal structure used to conduct activities or to hold assets. Some examples of such structures are corporations, partnerships, limited liability companies, grantor trusts, and other trusts.") need not be evaluated by a private company (reporting entity) under the guidance in the Variable Interest Entities Subsections if all of the following criteria are met:

1.  a
    
    The reporting entity and the legal entity are under common control.
    
2.  b
    
    The reporting entity and the legal entity are not under common control of a [public business entity](https://asc.understandingaccounting.org/glossary/p/#public-business-entity "A public business entity is a business entity meeting any one of the criteria below. Neither a not-for-profit entity nor an employee benefit plan is a business entity. It is required by the U.S. Securities and Exchange Commission (SEC) to file or furnish financial statements, or does file or furnish financial statements (including voluntary filers), with the SEC (including other entities whose financial statements or financial information are required to be or are included in a filing). It is required by the Securities Exchange Act of 1934 (the Act), as amended, or rules or regulations promulgated under the Act, to file or furnish financial statements with a regulatory agency other than the SEC. It is required to file or furnish financial statements with a foreign or domestic regulatory agency in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer. It has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market. It has one or more securities that are not subject to contractual restrictions on transfer, and it is required by law, contract, or regulation to prepare U.S. GAAP financial statements (including notes) and make them publicly available on a periodic basis (for example, interim or annual periods). An entity must meet both of these conditions to meet this criterion. An entity may meet the definition of a public business entity solely because its financial statements or financial information is included in another entity's filing with the SEC. In that case, the entity is only a public business entity for purposes of financial statements that are filed or furnished with the SEC.").
    
3.  c
    
    The legal entity under common control is not a public business entity.
    
4.  d
    
    The reporting entity does not directly or indirectly have a controlling financial interest in the legal entity when considering the General Subsections of this Topic. The Variable Interest Entities Subsections shall not be applied when making this determination.
    

Applying this accounting alternative is an accounting policy election. If a private company elects to apply this accounting alternative, it shall apply this alternative to all legal entities if criteria (a) through (d) are met. A reporting entity that elects the accounting alternative and, thus, does not apply the guidance in the Variable Interest Entities Subsections shall continue to apply other accounting guidance (including guidance in the General Subsections of this Subtopic) unless another scope exception from this Topic applies. A reporting entity applying this alternative shall disclose the required information specified in paragraphs [810-10-50-2AG through 50-2AI](https://asc.understandingaccounting.org/asc/810/10/#810-10-50-2AG) unless the legal entity is consolidated by the reporting entity through accounting guidance other than VIE guidance.

##### [810-10-15-17AE](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-17AE)

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To determine whether the private company (reporting entity) and the legal entity are under common control of a parent solely for the purpose of applying paragraph [810-10-15-17AD(a)](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-17AD), the private company shall consider only the parent's direct and indirect voting interest in the private company and the legal entity. In other words, only the guidance in the General Subsections of this Topic shall be considered for determining whether a parent has a direct or indirect controlling financial interest in the private company and the legal entity as required in paragraph [810-10-15-17AD(a)](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-17AD). The guidance in the Variable Interest Entities Subsections of this Topic shall not be applied for making this determination. See paragraphs [810-10-55-205AU through 55-205AZ](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AU) for illustrative guidance.

##### [810-10-15-17AF](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-17AF)

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If any of the criteria in paragraph [810-10-15-17AD](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-17AD) for applying the accounting alternative cease to be met, a private company shall apply the guidance in the Variable Interest Entities Subsections at the date of change on a prospective basis, except for situations in which a reporting entity becomes a public business entity. When a reporting entity becomes a public business entity, it shall apply the guidance in the Variable Interest Entities Subsections in accordance with Topic 250 on accounting changes and error corrections.

##### [810-10-15-17B](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-17B)

Pending content: no

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[Paragraph superseded by Accounting Standards Update No. 2018-17](https://asc.understandingaccounting.org/updates/asu-2018-17/).

##### [810-10-15-17C](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-17C)

Pending content: no

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[Paragraph superseded by Accounting Standards Update No. 2018-17](https://asc.understandingaccounting.org/updates/asu-2018-17/).

#### Collateralized Financing Entities

##### [810-10-15-17D](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-17D)

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The guidance on [collateralized financing entities](https://asc.understandingaccounting.org/glossary/c/#collateralized-financing-entity "A variable interest entity that holds financial assets, issues beneficial interests in those financial assets, and has no more than nominal equity. The beneficial interests have contractual recourse only to the related assets of the collateralized financing entity and are classified as financial liabilities. A collateralized financing entity may hold nonfinancial assets temporarily as a result of default by the debtor on the underlying debt instruments held as assets by the collateralized financing entity or in an effort to restructure the debt instruments held as assets by the collateralized financing entity. A collateralized financing entity also may hold other financial assets and financial liabilities that are incidental to the operations of the collateralized financing entity and have carrying values that approximate fair value (for example, cash, broker receivables, or broker payables).") in this Topic provides a measurement alternative to Topic 820 on fair value measurement and applies to a reporting entity that consolidates a collateralized financing entity when both of the following conditions exist:

1.  a
    
    All of the financial assets and the financial liabilities of the collateralized financing entity are measured at fair value in the consolidated financial statements under other applicable Topics, other than financial assets and financial liabilities that are incidental to the operations of the collateralized financing entity and have carrying values that approximate fair value (for example, cash, broker receivables, or broker payables).
    
2.  b
    
    The changes in the fair values of those financial assets and financial liabilities are reflected in earnings.

### Consolidation of Entities Controlled by Contract

#### Overall Guidance

##### [810-10-15-18](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-18)

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The Consolidation of Entities Controlled by Contract Subsections follow the same Scope and Scope Exceptions as outlined in the General Subsection of this Subtopic, see paragraph [810-10-15-1](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-1), with specific qualifications and exceptions noted below.

#### Entities

##### [810-10-15-19](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-19)

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The guidance in the Consolidation of Entities Controlled by Contract Subsections applies to all entities that are not determined to be [variable interest entities](https://asc.understandingaccounting.org/glossary/v/#variable-interest-entity "A legal entity subject to consolidation according to the provisions of the Variable Interest Entities Subsections of Subtopic 810-10.") (VIEs) (see the [Variable Interest Entities Subsection](https://asc.understandingaccounting.org/asc/810/10/#15-scope-and-scope-exceptions) of this Section) if the circumstances are similar to those described in the Consolidation of Entities Controlled by Contract Subsections. For example, there may be industries other than the health care industry in which a contractual management arrangement is established under circumstances similar to those addressed in the Consolidation of Entities Controlled by Contract Subsections.

#### Transactions

##### [810-10-15-20](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-20)

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The guidance in the Consolidation of Entities Controlled by Contract Subsections applies, in part, to contractual management arrangements with both of the following characteristics:

1.  a
    
    Relationships between entities that operate in the health care industry including the practices of medicine, dentistry, veterinary science, and chiropractic medicine (for convenience, entities engaging in these practices are collectively referred to as physician practices)
    
2.  b
    
    Relationships in which the physician practice management entity does not own the majority of the outstanding voting equity instruments of the physician practice, whether because the physician practice management entity is precluded by law from owning those equity instruments or because the physician practice management entity has elected not to own those equity instruments.
    

As stated in the preceding paragraph, there may be industries other than the health care industry in which a contractual management arrangement is established under circumstances similar to those addressed in the Consolidation of Entities Controlled by Contract Subsections.

##### [810-10-15-21](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-21)

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A physician practice management entity can establish a controlling financial interest in a physician practice through contractual management arrangements. Specifically, a controlling financial interest exists if, for a requisite period of time, the physician practice management entity has control over the physician practice and has a financial interest in the physician practice that meets all six of the requirements listed in the following paragraph. That paragraph contains guidance that describes how those six requirements are to be applied. Paragraph [810-10-55-206](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-206) contains a decision tree illustrating the basic analysis called for by both the six requirements and the presumptive, but not the other, interpretive guidance.

##### [810-10-15-22](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-22)

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If all of the following requirements are met, then the physician practice management entity has a controlling financial interest in the physician practice:

1.  a
    
    Term. The contractual arrangement between the physician practice management entity and the physician practice has both of the following characteristics:
    
    1.  1
        
        Has a term that is either the entire remaining legal life of the physician practice entity or a period of 10 years or more
        
    2.  2
        
        Is not terminable by the physician practice except in the case of gross negligence, fraud, or other illegal acts by the physician practice management entity, or bankruptcy of the physician practice management entity.
        
2.  b
    
    Control. The physician practice management entity has exclusive authority over all decision making related to both of the following:
    
    1.  1
        
        Ongoing, major, or central operations of the physician practice, except for the dispensing of medical services. This must include exclusive [decision-making authority](https://asc.understandingaccounting.org/glossary/d/#decision-making-authority "The power to direct the activities of a legal entity that most significantly impact the entity's economic performance according to the provisions of the Variable Interest Entities Subsections of Subtopic 810-10.") over scope of services, patient acceptance policies and procedures, pricing of services, negotiation and execution of contracts, and establishment and approval of operating and capital budgets. This authority also must include exclusive decision-making authority over issuance of debt if debt financing is an ongoing, major, or central source of financing for the physician practice.
        
    2.  2
        
        Total practice compensation of the licensed medical professionals as well as the ability to establish and implement guidelines for the selection, hiring, and firing of them.
        
3.  c
    
    Financial interest. The physician practice management entity must have a significant financial interest in the physician practice that meets both of the following criteria:
    
    1.  1
        
        Is unilaterally saleable or transferable by the physician practice management entity
        
    2.  2
        
        Provides the physician practice management entity with the right to receive income, both as ongoing fees and as proceeds from the sale of its interest in the physician practice, in an amount that fluctuates based on the performance of the operations of the physician practice and the change in the fair value thereof.
        

Term, control, financial interest, and so forth are further described in paragraphs

[810-10-25-63 through 25-79](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-63)

.