VIE Alternatives for Private Companies

The Financial Accounting and Standards Board (FASB) issued for public comment an exposure draft that could exempt many private companies from the requirement to apply variable-interest entity (VIE) consolidation guidance under topic 810 to companies under common control.

The proposal would create an alternative within U.S. Generally Accepted Accounting Principles that applies to lessor companies under common control. Under the proposal, Applying Variable Interest Entity Guidance to Common Control Leasing Arrangements, 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.

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

Comments will be accepted through October 14, 2013 using the electronic feedback form available on FASB’s website. The effective date would be determined after the Private Company Council considers feedback received on the exposure draft.