FASB issues private company VIE alternative

BY KEN TYSIAC

A GAAP alternative issued by FASB on Thursday 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, 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 (PCC), which was formed in 2012.

The PCC was created by FASB’s parent organization, the Financial Accounting Foundation, to spearhead efforts to make standards less burdensome for private companies.

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.

Two other GAAP alternatives for private companies initiated by the PCC were released by FASB in January. Those alternatives:

  • Exempted private companies from the requirement to annually perform impairment testing for goodwill subsequent to a business combination.
  • Created a simplified hedge accounting approach for certain interest-rate swaps that private companies other than financial institutions enter to convert variable-rate debt to fixed-rate debt.


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

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