Financial reporting

  A GAAP alternative issued by FASB will allow a private company to elect—under certain circumstances—not to consolidate variable-interest entities (VIEs) in common-control leasing arrangements.

The exemption, described in FASB Accounting Standards Update No. 2014-07, Consolidation (Topic 810): Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements, is the third GAAP alternative for private companies endorsed by FASB after being created and approved by the Private Company Council. The update is available at

Under the GAAP alternative, a private company lessee can elect not to apply VIE guidance to a lessor when all the following conditions exist:

  • The private company lessee and lessor are under common control.
  • The private company lessee has a leasing arrangement with the lessor.
  • Substantially all activity between the entities is related to the leasing activity between them.
  • If the private company lessee explicitly guarantees or provides collateral for any obligation of the lessor related to the asset leased by the private company, then the principal amount of the obligation at inception does not exceed the value of the asset leased by the private company from the lessor.

A private company that elects to take advantage of the exemption would make certain new disclosures about the lessor and the leasing arrangement. If elected, the accounting alternative should be applied to all leasing arrangements that meet the conditions for applying the alternative.

The alternative should be applied retrospectively to all periods presented and takes effect for annual periods beginning after Dec. 15, 2014, and interim periods within annual periods beginning after Dec. 15, 2015. Early application is allowed for all financial statements that have not yet been made available for issuance.

  New guidance issued by FASB will reduce the number of disposals of assets that should be presented as discontinued operations in organizations’ financial reporting.

Only disposals representing a strategic shift in operations that have a major effect on the organization’s operations and financial results will be required to be presented as discontinued operations.

Examples cited by FASB include disposals of the following: a major geographic area; a major line of business; and a major equity method investment.

Expanded disclosures are required in the new guidance to provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations.

Disclosure of the pretax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting also is required by the new guidance. Financial statement users will be able to review this disclosure to get information about the ongoing trends in an organization’s results from continuing operations.

The changes address concerns that too many disposals of assets—including small groups of assets that are recurring in nature—qualify for discontinued operations presentation, FASB Chairman Russell Golden said in a statement.

Accounting Standards Update No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, takes effect in the first quarter of 2015 for public organizations with calendar year ends. It will take effect for most nonpublic organizations for annual financial statements with fiscal years beginning on or after Dec. 15, 2014. The update is available at

  Approximately 6,000 large organizations in the European Union may soon be required to make new nonfinancial disclosures on environmental and social issues as a result of a new directive adopted by the European Parliament.

Public-interest entities with more than 500 employees, including listed companies, banks, and insurance firms, will be required to disclose information in their management reports on policies, risks, and results regarding:

  • Environmental matters.
  • Social and employee-related issues.
  • Respect for human rights.
  • Anticorruption and bribery issues.
  • Diversity on boards of directors.

When this issue went to press, the directive was awaiting adoption by the member states in the EU Council of Ministers to become law.

The directive requires companies to provide concise, useful information rather than a full-fledged, detailed report. Disclosures may be provided at a group level rather than by each affiliate within a group.

Companies will have the flexibility to disclose relevant information in the way that they consider most useful and may use a separate report for the disclosures. In preparing the disclosures, companies will have the choice of using international, European, or national guidelines such as the U.N. Global Compact, ISO 26000, or the German Sustainability Code.

Large listed companies will be required to provide information about the diversity policies for their boards. Disclosures will describe the objectives of the policy, how it has been implemented, and its results.

  Amendments proposed by the International Accounting Standards Board (IASB) are designed to play a role in the board’s effort to reduce disclosure overload.

Proposed amendments to IAS 1, Presentation of Financial Statements, are the result of one of several short-term projects under the IASB’s broader Disclosure Initiative. The initiative’s purpose is to ensure that financial reports are instruments of communication and not simply compliance documents, according to IASB Chairman Hans Hoogervorst. The proposal is available at

Comments are sought by July 23 and can be made at the IFRS website at


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