PCC proposing VIE consolidation exception for private company leases

BY KEN TYSIAC
July 16, 2013

The Private Company Council (PCC) voted Tuesday to propose a GAAP alternative for private companies for applying consolidation guidance for leasing entities under common control.

Private companies would be exempt from applying consolidation guidance for variable-interest entities (VIEs) under common control leasing arrangements under the proposal the PCC voted to expose for public comment.

PCC Issue No. 13-02, Applying Variable Interest Entity Guidance to Common Control Leasing Arrangements (formerly FIN 46(R) and FAS 167), is designed to require disclosures that are better aligned with information that private company financial statement users typically use in assessing the cash flows of a reporting entity.

Many financial statement preparers and users have said the current standard lacks relevance for private companies.

“I don’t think there is a bigger issue that causes more angst with more people than this,” PCC member Mark Ellis said during Tuesday’s meeting, in support of the proposal.

The proposal will be drafted by FASB’s staff and presented to FASB for endorsement at a future meeting. If FASB endorses it, the proposal will be exposed for public comment. The PCC then would have the opportunity to make changes and forward a final recommendation to FASB. Upon a second endorsement by FASB, the change for private companies would be written into GAAP.

Three other PCC items already have advanced deeper in the process toward GAAP exceptions and modifications. Earlier this month, FASB proposed changes to GAAP for private companies that previously were advanced by the PCC.

“In advancing the PCC’s fourth accounting standards proposal, the PCC is making significant progress in tackling issues top of mind for users, preparers, and auditors of private company financial statements,” PCC Chairman Billy Atkinson said in a news release.

The previous three 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 types of interest rate swaps entered into for the purpose of converting variable-rate borrowing to fixed-rate borrowing.


Comments on those proposals are due Aug. 23 at FASB’s website.

During Tuesday’s meeting, the PCC and FASB also voted to finalize FASB’s Private Company Decision-Making Framework, which will provide conditions under which the PCC can consider and vote on future changes to GAAP for private companies. The framework is expected to be issued by the end of the summer.

In addition, the PCC recommended that FASB consider adding a narrow-scope project to its agenda to address concerns of users and preparers about requirements for the financial statements of development-stage entities of both private and public companies. FASB voted to add the project to its agenda.

ASC Topic 915, Development Stage Entities (formerly FAS 7), requires a development-stage company to prepare its financial statements using the same accounting principles as an established operating company. The standard also requires reporting of additional cumulative information for each income statement item and in the statement of cash flows from the company’s inception.

A company also is required to report the history of all transactions from inception, including noncash considerations. Preparers are concerned about the volume of reporting required and whether the information is relevant for financial statement users.

FASB also announced that it will hold a public round-table and town hall meeting on Nov. 4 at Ohio State University to seek input from private company stakeholders.

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

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