Companies which report under US GAAP need to consider the application of FASB Interpretation No.46 (R) (FIN 46 (R)). Rushed through in the aftermath of the Enron collapse, FIN 46 (R) covers the accounting treatment of any entity in which, although not a subsidiary by virtue of share ownership, the company has an interest (referred to as a variable interest) and bears some of the risks and rewards of future gains and losses arising in the entity.
FIN 46 (R) was designed to address the issue of off balance sheet entities, but the scope of FIN 46 (R) is very wide reaching. FIN 46 (R) requires companies to undertake detailed tests to determine the value of assets in which they have a variable interest as a percentage of the total assets of the entity, and also who enjoys a majority of the risks and rewards of future gains and losses. In certain circumstances, under FIN 46, companies are required to consolidate such entities or account for the assets in which they have an interest, as investments.
At Intangible Business, we have experience in applying FIN 46 (R) to complex international groups involving hundreds of legal entities. We have successfully created a logical, transparent step-by-step process for the application of FIN 46 (R) to ensure and demonstrate compliance.