The Private Company Council has voted to finalize an alternative standard for private companies to use when applying variable interest entity guidance to common control leasing arrangements.
The PCC, which operates under the auspices of the Financial Accounting Foundation along with the Financial Accounting Standards Board, voted at a meeting Tuesday to finalize the alternative VIE standard for private companies and send it to FASB for endorsement. FASB plans to discuss the proposed alternative and also consider the applicability of the VIE alternative to publicly traded companies in the coming weeks.
The alternative would permit a private company to elect not to apply VIE guidance for assessing whether it should consolidate a lessor entity when (a) the lessor entity and the private company are under common control, (b) the private company has a leasing arrangement with the lessor entity, and (c) substantially all of the activity between the two entities is related to the leasing activity of the lessor entity.
The accounting alternative 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 alternative approach. If a private company lessee elects to apply the guidance in the proposed accounting standards update, it would be required to disclose additional information about each applicable lessor entity.
The 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 would need to continue to apply other applicable U.S. GAAP standards for leases and guarantees.
In other developments at Tuesday’s meeting, the PCC continued its discussions on a proposal for accounting for identifiable intangible assets in a business combination and directed the FASB staff to conduct additional research that will be further discussed at the next PCC meeting in January.
At the most recent meeting, the PCC and FASB also discussed FASB’s projects on reporting discontinued operations and definition of a public business entity. The PCC also provided feedback on FASB’s leasing proposals.
FASB plans to meet on November 25 to discuss endorsement of the PCC’s alternative standards for accounting for interest rate swaps and for goodwill subsequent to a business combination. The PCC voted last month to finalize those alternative standards and send them to FASB for ratification (see PCC Finalizes 2 Private Co. Standards).
Also discussed at Tuesday’s PCC meeting was feedback on PCC and FASB projects that were heard from private company stakeholders at the Nov. 4, 2013 Town Hall meeting held at Ohio State University. For more information on PCC projects, visit the PCC Web site.
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