FASB Issues GAAP Variable Interest Entity Alternative

An accounting alternative that was issued by the Financial Accounting Standards Board (FASB) on March 20 would – if certain conditions are met – exempt private companies from applying variable interest entity (VIE) guidance to lessors under common-control leasing arrangements.

Under the new guidance – FASB Accounting Standards Update No. 2014-07, Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements – the private company would instead make certain disclosures about the lessor and the leasing arrangement.

The alternative was approved by the Private Company Council (PCC), which works with the FASB to enhance the relevance and reduce the complexity of certain standards for private companies that prepare US GAAP-based financial statements.

According to the GAAP alternative, a private company lessee could elect not to apply VIE guidance to a lessor when the following conditions are met:

  • The private company lessee and the lessor are under common control.
  • The private company lessee has a leasing arrangement with the lessor.
  • Substantially all of the activity between the private company lessee and the lessor is related to the leasing activities (including supporting leasing activities) between those two companies.
  • If the private company lessee explicitly guarantees or provides collateral for any obligation of the lessor related to the asset leased by the private company, then the principal amount of the obligation at inception does not exceed the value of the asset leased by the private company from the lessor.

If elected, the accounting alternative would be applied to all leasing arrangements meeting the alternative’s conditions.

“The disclosures under this alternative provide useful lessor-related information for users of private company financial statements, while reducing costs and complexity for private company lessees that apply VIE guidance,” FASB Chairman Russell Golden said in a written statement. “Therefore, the alternative meets the overall objective of the Private Company Decision-Making Framework for addressing the needs of private company stakeholders.”

According to the FASB, the alternative should be applied retrospectively to all periods presented, and is effective for annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015. Early application is permitted for all financial statements that have not yet been issued.

Related articles:

FASB Backs Variable Interest Entity GAAP Alternative
Final US GAAP Framework for Private Companies Issued by FASB and PCC

You may like these other stories...

Deal to lock in US tax cuts is bubbling up on the HillSome US lawmakers are exploring a post-election deal that would lock in permanent tax cuts for major corporations and low-income families, Richard Rubin of Bloomberg...
Read more from Larry Perry here and in the Today's World of Audits archive.This article discusses basic accounting principles for operating expenses under the FRF for SMEs. Part 2 will address basic auditing procedures....
Judge dismisses AICPA lawsuit against the IRSMichael Cohn of Accounting Today reported on Tuesday that a federal judge has dismissed a lawsuit against the IRS by the American Institute of CPAs (AICPA) over its new program...

Already a member? log in here.

Upcoming CPE Webinars

Nov 5Join CPA thought leader and peer reviewer Rob Cameron and learn ways to improve the outcome of your peer reviews while maximizing the value of your engagement workflow.
Nov 18In this session Excel expert David Ringstrom, CPA tackles what to do when bad things happen to good spreadsheets.
Nov 19How do you minimize redundant work and unnecessary steps to maximize the amount of work moving through your firm?
Nov 20Kristen Rampe will share how to uncover new opportunities with your clients by asking powerful questions.