by Lisa Wallace
On December 8, 2011 the FASB issued an exposure draft that would redefine for many of our clients when amounts from CTA would be reclassified to income. Comments were due on this guidance by February 6, 2012.
The guidance appears to change the model for reclassifying CTA from an “entity” model to a “business” model. Currently amounts are reclassified to earnings upon complete or substantial liquidation of a subsidiary. The proposed guidance will trigger reclassification to income “when a reporting entity ceases to have a controlling financial interest in a group of assets that is…a business (other than a sale of in substance real estate…) within a consolidated foreign entity”. Apparently, each asset sale will involve management judgment to determine if the set of assets sold represent a “business”.
The amount of CTA reclassified to earnings will reflect the asset group’s relative portion of the foreign entity’s CTA: either a pro rata portion of the gain/loss based on the relative proportion of the net assets of the entity at the date of disposition or the gain/loss attributable to specific assets and liabilities of the business. If a parent had hedged the entity holding the “business” in which they no longer hold a controlling financial interest, they would also release into earnings the related amount of accumulated gain/loss from any net investment hedges.
The full text of the Exposure draft as well as the six comment letters received as of February 6th can be found at: www.fasb.org.