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FASB issues PCC proposal on alternative consolidation requirements for private companies

  • FASB (US Financial Accounting Standards Board) Image
  • PCC (Private Company Council) (mid blue) Image

Aug 23, 2013

The FASB has issued a proposal that intends to improve financial reporting for private companies within U.S. GAAP. The proposal 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.

On August 8, 2013, the FASB voted to endorse the alternative to U.S. GAAP proposed by the Private Company Council (PCC). According to the proposed Accounting Standards Update (ASU), Applying Variable Interest Entity Guidance to Common Control Leasing Arrangements, a private company would not be required to apply the variable interest guidance if certain conditions are met. However, the proposal would require private companies that elect this option to disclose additional information.

The main provisions provided in this proposed ASU are:

The proposed amendments would permit a private company to elect not to apply VIE guidance for assessing whether it should consolidate a lessor entity when (1) the lessor entity and the private company are under common control, (2) the private company has a leasing arrangement with the lessor entity, and (3) substantially all of the activity between the two entities is related to the leasing activity of the lessor entity.

The accounting alternative, when elected, would be an accounting policy election that would be applied by a private company to all current and future lessor entities under common control that meet the criteria for applying this approach.

If a private company lessee elects to apply the guidance in this proposed Update, it would be required to disclose additional information about each applicable lessor entity. Such disclosures would include the key terms of the leasing arrangements, the amount of debt and/or significant liabilities of the lessor entity under common control, the key terms of existing debt agreements of the lessor entity under common control, and the key terms of any other explicit interest related to the lessor entity under common control. In addition, entities that elect this alternative should continue to apply other applicable Codification guidance, including Topic 840, Leases, and Topic 460, Guarantees.

Comments on the proposal are due by October 14, 2013.

For more information, see Deloitte's Heads Up — FASB issues proposed ASU on alternative consolidation requirements for private companies, and the FASB Web site for its:

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