The Private Company Council (PCC) approved a proposal that would exempt private companies from consolidating variable-interest entities (VIEs) under common-control leasing arrangements. Private companies are considered any entities that are not public companies, not-for-profit organizations and employee benefit plans.
The PPC made changes to the original proposal, primarily relating to the definition of “common control.” Ultimately, the PCC clarified the concept of common control for the purposes of this proposal. The PCC further specified that this GAAP exception can be used only if the lessor entity’s liabilities only finance the assets leased to the operating company and are not collateralized by the operating company’s assets.
The final hurdle to clear before the proposal is finalized is endorsement by the Financial Accounting Standards Board (FASB).
The FASB is also considering two other exceptions that have been approved by the PCC for endorsement. The vote is scheduled for November 25. These exceptions would:
- Allow private companies to choose a simplified hedge accounting approach to their financial reporting when they enter into interest rate swaps to economically convert their variable-rate interest payments to fixed-rate interest payments.
- Give private companies the ability to amortize goodwill acquired in a business combination.
There have been no discussion relative to possible effective dates, and the endorsement by the FASB is not guaranteed.
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