PCC modifies prerequisites for private-company VIE exception

BY KEN TYSIAC

The Private Company Council (PCC) on Tuesday modified the criteria for private companies to be eligible for a GAAP exception it had forwarded last year to FASB—a move that could provide relief to more small businesses.

The PCC in November forwarded a GAAP exception that would exempt private companies from a requirement to consolidate variable-interest entities in common-control leasing arrangements. But some private companies were concerned that the prerequisites for the exception were too restrictive.

On Tuesday, the PCC amended the conditions that must be present for a private company to use the GAAP exception. The revised conditions are:

  • The private-company lessee and lessor entity are under common control.
  • The private company has a leasing arrangement with the lessor entity.
  • Substantially all the activity between the two entities is related to the leasing activity of the lessor entity to the private-company lessee, clarifying that a guarantee is one of those activities.
  • The leased asset sufficiently collateralizes the debt of the lessor at inception.


The PCC will forward the GAAP exception to FASB for endorsement. If FASB endorses the exception, it will be written into GAAP.

Other action

- The PCC also decided to end its pursuit of a “combined instruments approach” that it had proposed as a second alternative to accounting for certain receive-variable, pay-fixed interest rate swaps. One PCC-initiated GAAP exception for such swaps—the simplified hedge accounting approach—already was released as an Accounting Standards Update on Jan. 16.

- The PCC also made progress in its work to create a GAAP exception for recognizing intangible assets separately from goodwill in a business combination, but it will continue its deliberation during its next meeting on April 29.

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

Where to find May’s flipbook issue

The Journal of Accountancy is now completely digital. 

 

 

 

SPONSORED REPORT

Implementing lease accounting

FASB’s Codification (ASC) 842, Leases, requires companies to make significant changes in the way they report operating leases. But one of the initial challenges might be simpler than you think … find out more with this report.