FASB Backs Variable Interest Entity GAAP Alternative
The Financial Accounting Standards Board (FASB)  on February 19 green-lighted an accounting alternative that would exempt many private companies from applying variable interest entity (VIE) guidance to lessor companies under common-control leasing arrangements if certain conditions are met.
The FASB defines variable interest entity as “a company in which controlling financial interest is not established based on a majority of voting rights.”
The alternative under US Generally Accepted Accounting Principles (GAAP), which was finalized by the Private Company Council (PCC)  on January 28, states that “when the arrangement between a private company lessee and a lessor entity meets certain conditions, the private company lessee can elect the alternative and not apply the VIE guidance to the lessor entity.”
The exemption will only be allowed if the following conditions exist:
- The private company lessee and the lessor entity are under common control.
- The private company lessee has a leasing arrangement with the lessor entity.
- Substantially all the activity between the two entities is related to the leasing activity of the lessor entity to the private company lessee.
- Any obligation of the lessor that is being guaranteed or collateralized by the private company lessee could, at the inception of the obligation, be sufficiently collateralized by the asset(s) leased to the private company.
A private company would replace VIE disclosures about the lessor entity with the following:
- Disclosures about the amount and key terms of significant liabilities recognized by the lessor entity that expose the private company to having to provide significant financial support to the lessor entity.
- A qualitative description of significant arrangements not recognized that expose the private company to having to provide significant financial support to the lessor entity.
The FASB expects to issue the final standard in late March and noted yesterday that the alternative would be available for early adoption for any financial statements that have not yet been issued.
PCC Finalizes Standard on Variable Interest Entity Guidance 
FASB Proposes Variable Interest Entity Guidance Exemption 
PCC Finalizes Two GAAP Standards for FASB to Endorse