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FASB votes to expose alternative consolidation requirements for private companies

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Aug 08, 2013

Yesterday, the FASB voted to expose for public comment a Private Company Council (PCC) proposal that would give private companies the option not to apply the variable interest entity (VIE) guidance in ASC 810 to certain interests in entities under common control.

Specifically, a private company would not be required to apply the variable interest guidance if the arrangement meets all of the following conditions:

  1. The private company and the legal entity are under common control
  2. The private company has a lease arrangement with the legal entity
  3. Substantially all activities between the private company and the legal entity are related to the leasing activities (including supporting leasing activities) of the legal entity.

However, the proposal would require private companies that elect this option to disclose the following additional information:

  1. The key terms of the leasing arrangements
  2. The amount of debt and/or significant liabilities of the lessor entity under common control
  3. The key terms of existing debt agreements of the lessor under common control (for example, amount of debt, interest rate, maturity, pledged collateral, guarantees, and so forth)
  4. The key terms of any other explicit interest in the lessor entity.

A private company that elects this option would be required to apply the proposed alternative to all of its leasing arrangements that meet the above requirements. The proposal would also remove the example codified in ASC 810-10-55-87 through 55-89. Such removal could affect both public and private companies.

The proposal is scheduled to be exposed for public comment by August 23, 2013, and the comment period is expected to end on October 14, 2013. The proposed alternative would be applied retrospectively, with an adjustment to the opening balances of the earliest period presented.

For more information about the PCC, see our PCC resource page or the FASB’s website.

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