FASB proposes VIE alternative for private companies

BY KEN TYSIAC
August 22, 2013

FASB on Thursday formally issued for public comment a proposal that would exempt many private companies from the requirement to apply variable-interest entity (VIE) consolidation guidance to lessor companies under common control.

The proposal, which was originally advanced by the Private Company Council (PCC), would create an alternative within U.S. GAAP that would address a common source of frustration for private companies and their financial statement preparers.

Under the proposal, Applying Variable Interest Entity Guidance to Common Control Leasing Arrangements (formerly FIN 46(R) and FAS 167), a private company lessee would have the option not to apply VIE consolidation guidance when:

  • The lessor and the private company are under common control;
  • The private company has a leasing arrangement with the lessor; and
  • Substantially all activity between the two companies is related to the leasing activity of the lessor.


Additional disclosures would be required of private companies that apply this exemption. These disclosures would include:

  • The key terms of the leasing arrangements.
  • The amount of debt and/or significant liabilities of the lessor under common control.
  • The key terms of existing debt agreements of the lessor under common control.
  • The key terms of any other explicit interest related to the lessor under common control.


Comments will be accepted through Oct. 14 on FASB’s website. The effective date would be determined after the PCC considers feedback received on the exposure draft.

“This proposal is intended to help lenders and other users better align the information used in assessing the financial position of private companies that prepare financial statements,” FASB Chairman Russell Golden said in a news release.

After reviewing feedback, the PCC will have an opportunity to make changes and hold a vote that would forward the final version of the GAAP exception to FASB. If FASB endorses the exception, the alternative would be written into GAAP.

Companies that are able to use the exception would continue to apply other applicable FASB guidance, including Topic 840, Leases, and Topic 460, Guarantees.

Comment periods expire Friday for three other FASB proposals for private company alternatives within GAAP that originated with the PCC.

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

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