FASB Interpretations
FASB Interpretations were documents issued by the Financial Accounting Standards Board (FASB), the organization that sets generally accepted accounting principles (GAAP) in the United States, between 1973 and 2000. These interpretations clarified, explained, elaborated on, or even modified existing FASB Statements of Financial Accounting Standards (SFAS) or Accounting Research Bulletins (ARBs).
FASB Interpretations are considered a part of U.S. GAAP and, thus, were authoritative. They were designed to guide companies and accountants in applying accounting standards to specific situations or conditions. FASB Interpretations dealt with a wide variety of topics, including issues related to leases, income taxes, and fair value measurements.
Since 2009, FASB has not issued any new interpretations. Instead, it issues Accounting Standards Updates (ASUs), which may serve to amend the Accounting Standards Codification (ASC), the single source of authoritative U.S. GAAP. This change was part of a broader effort to simplify and integrate the many separate elements of U.S. GAAP into a consistent, searchable, and easily navigable format.
Despite the fact that FASB no longer issues interpretations, the content of those that were issued prior to the codification process remains relevant because it has been incorporated into the ASC.
Example of FASB Interpretations
An example of a FASB Interpretation is FIN 46 (later revised as FIN 46R), “Consolidation of Variable Interest Entities.” This interpretation was issued in response to certain types of business structures and arrangements that emerged in the late 1990s and early 2000s, where a company could hold a significant economic interest in another entity, but not have a majority voting interest.
Before FIN 46, generally only majority-owned subsidiaries were consolidated for financial reporting purposes. This interpretation broadened the conditions requiring consolidation by introducing the concept of a “variable interest entity” (VIE), which is an entity in which the investor holds a controlling interest that is not based on the majority of voting rights.
FIN 46 required a company to consolidate a VIE if it has a variable interest that provides it with a majority of the entity’s expected losses, expected residual returns, or both – thereby making it the primary beneficiary.
This interpretation was significant because it addressed potential off-balance-sheet arrangements and aimed to increase transparency for users of financial statements. The content of FIN 46R has since been incorporated into the FASB Accounting Standards Codification (ASC), specifically ASC 810, “Consolidation.”
