Financial reporting

October 1, 2013

  FASB moved closer to providing relief for private companies from variable-interest entity (VIE) consolidation requirements for common control leasing arrangements, which are considered costly and irrelevant by many small business owners.

The board voted to endorse a decision by the Private Company Council (PCC) to propose an alternative for private companies within GAAP for applying VIE guidance to lessor entities under common control.

An exposure draft seeking public comment on PCC Issue No. 13-02, Applying Variable Interest Entity Guidance to Common Control Leasing Arrangements, was released on Aug. 22, and comments on the proposal are due Oct. 14.

Under the proposal, a private company lessee would not have to apply VIE guidance for assessing 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.


Private companies still would have to consider other applicable FASB Accounting Standards Codification (ASC) guidance, such as Topic 840, Leases, and Topic 460, Guarantees, for transactions and arrangements between the two entities.

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.


If an entity chooses to use this proposed alternative, it would apply to all of its leasing arrangements that meet the requirements for applying this approach. A full retrospective approach would be used to apply the proposed alternative.

Following the comment period, the PCC will evaluate feedback and vote on a final standard. If FASB endorses the final standard advanced by the PCC, an alternative for private companies will be written into GAAP.

Earlier this year, three other PCC proposals were exposed, with a comment deadline of Aug. 23. For more information, visit tinyurl.com/okslqe3.


  FASB and the International Accounting Standards Board (IASB) plan to create a joint transition resource group to aid in implementation of the upcoming, converged standard on revenue recognition.

The standard will have wide-ranging implications for many businesses, and the transition group will be tasked with keeping the boards up to date about interpretive issues that arise when organizations implement the standard.

The group will analyze and discuss issues that apply to common transactions that could lead to diversity in practice, and will help the boards determine if action needs to be taken to resolve that potential diversity. The group will advise the boards and will not issue its own guidance.

Members of both boards, as well as preparers, auditors, regulators, and users, will be represented on the 10- to 15-member transition group.


  FASB would not consider not-for-profits (NFPs) and employee benefit plans public business entities for purposes of future standard setting, according to a new proposal the board exposed for public comment.

FASB is defining a public business entity to prevent confusion over which entities can apply the alternatives within GAAP being developed for private companies by the PCC. The board described the proposal in an issue of FASB in Focus released in August, and consideration of NFPs in particular would change if the proposal is approved.

Multiple definitions of the terms “nonpublic entity” and “public entity” exist within FASB’s Accounting Standards Codification (ASC). The proposal, Definition of a Public Business Entity: An Amendment to the Master Glossary, would provide a single definition of a public business entity for use in future standard setting. The proposal, available at tinyurl.com/kn4egz9, would not affect existing financial reporting requirements.

Although NFPs generally have received the same alternatives as private companies within GAAP, distinctions between NFPs for alternatives within GAAP have typically been made on the basis of whether an NFP has public debt securities, including conduit debt.

The proposal would eliminate a public vs. nonpublic distinction between NFPs in future standard setting. FASB instead would consider various factors on a standard-by-standard basis to determine whether all, none, or only some NFPs will be eligible for alternatives within GAAP for private companies. These factors would include user needs and NFP resources.

An organization would be considered a public business entity if it meets any of the following criteria:

  • It files or furnishes—or is required to file or furnish—financial statements with the SEC. This includes other entities whose financial statements or financial information are required to be or are included in a filing.
  • It is required to file or furnish financial statements with a regulatory agency by the Securities Exchange Act of 1934, as amended, or rules or regulations promulgated under the Act.
  • It is required to file or furnish financial statements with a regulatory agency in preparation for the sale of securities or for the purposes of issuing securities.
  • It has (or is a conduit bond obligor for) unrestricted securities that are traded or can be traded on an exchange or an over-the-counter market.
  • Its securities are unrestricted, and it is required to provide U.S. GAAP financial statements to be made publicly available on a periodic basis because of a legal or regulatory requirement.


Comments were due Sept. 20.

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