At its most recent meeting, the Financial Accounting Standards Board (FASB) voted to endorse the Private Company Council’s (PCC) proposal to exempt private companies from certain provisions of the variable interest entity (VIE) guidance under generally accepted accounting principles.
The PCC’s proposal would allow a private company lessee to not have to assess whether it should consolidate the lessor entity when all of the following conditions are met:
- The private company and legal entity are under common control.
- The private company has a lease arrangement with the legal entity.
- Substantially all activities between the private company and the legal entity are related to the leasing activities (including supporting leasing activities) of the legal entity.
A private company applying the proposed alternative within GAAP would be required to provide the following additional disclosures:
- 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 under common control, such as amount of debt, interest rate, maturity, pledged collateral and guarantees.
- The key terms of any other explicit interest in the lessor entity.
An entity would be required to apply this alternative approach to all of its leasing arrangements that meet the requirements for applying this approach. Full retrospective treatment would be applied under this alternative.
An exposure draft on is expected to be issued in late August, with the comment period running through October 14.
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