FASB to propose relief for private companies from VIE requirements

BY KEN TYSIAC
August 7, 2013

FASB moved closer Wednesday 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, is scheduled to be released in late August, with a comment period to end 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.

The PCC was formed last year in part to create alternatives to GAAP for private companies. Earlier this year, three other PCC proposals were exposed, with a comment deadline of Aug. 23. The proposals would:

  • Relieve private companies from having to separately recognize certain intangible assets acquired in a business combination.
  • Permit amortization of goodwill (the residual asset recognized in a business combination after recognizing all other identifiable assets acquired and liabilities assumed) and a simplified goodwill impairment model.
  • Give private companies other than financial institutions the option to use two simpler approaches to account for certain interest rate swaps that a private company enters into for the purpose of converting borrowing rates from variable to fixed.


Although VIE relief with respect to leases was not among the first alternatives proposed, it is among the leading concerns about financial reporting among private companies. PCC member Mark Ellis said last month that no issue causes more angst for more private companies.

The problems for private companies with VIEs and leases resulted from FASB’s creation of FIN 46(R) and FASB Statement No. 167, codified in ASC Topic 810, Consolidation. FASB created the standard after Enron’s 2001 bankruptcy to prevent companies from hiding liabilities on the balance sheets of dummy corporations. But private company owners have found that the standard adds complexity to their financial statements without benefits to users in cases where they own buildings and lease them back to their companies.

Ken Tysiac ( ktysiac@aicpa.org ) is a JofA senior editor.

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