FASB Aims to Simplify Guidance on Consolidation of VIEs

Jun 23rd 2017
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The Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update (ASU) on June 22 that would make financial reporting associated with the consolidation of variable interest entities (VIEs) less complex.

The proposed ASU, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities, includes recommendations from the Private Company Council.

The proposal considers private company concerns related to the difficulty of navigating and applying current VIE guidance to common-control arrangements.

Under the proposed ASU, a private company wouldn’t have to apply VIE guidance to legal entities under common control (including common-control leasing arrangements) if both the parent and the legal entity being considered for consolidation are not public business entities.

The accounting alternative would be an accounting policy election that a private company would apply to all current and future legal entities under common control that meet the criteria for applying this alternative, which could not be applied to select common-control arrangements.

If the alternative is elected, a private company still would have to follow other consolidation guidance, especially the voting interest entity guidance, unless another scope exception applies.

In addition, under the proposed ASU, a private company would be required to provide detailed disclosures about its involvement with and exposure to the legal entity under common control. The proposal also would amend certain VIE guidance for related-party arrangements.

The amendments would affect reporting entities that are required to determine whether they should consolidate a legal entity under the guidance within the Variable Interest Entities Subsections of Subtopic 810-10, Consolidation – Overall, including private companies that have elected the accounting alternative for leasing arrangements under common control.

The proposed ASU would reduce diversity in practice in applying VIE guidance to private companies under common control because it is expected that many private companies will elect the accounting alternative, the FASB said. The accounting alternative also is expected to “improve user relevance by providing users of private company financial statements with additional disclosures structured in a more consistent manner.” Thus, the costs and complexity associated with applying VIE guidance to common-control arrangements would be reduced for private companies, the FASB said.

Comments on the proposed ASU are due by Sept. 5. The exposure draft includes instructions on how to submit comments to the FASB.


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