FASB Proposes Guidance on Variable Interest Entities

July 2017

In response to recommendations of the Private Company Council (PCC), the US Financial Accounting Standards Board (FASB) has issued the proposed Accounting Standard Update (ASU), Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. The FASB expects this proposed guidance to reduce the cost and complexity of financial reporting associated with consolidation of variable interest entities (VIEs). Comments are due by 5 September 2017.

The proposed ASU would address private company concerns around the difficulty of applying current VIE guidance to common control arrangements. Under the proposed amendments, a private company (reporting entity) would not have to apply VIE guidance to legal entities under common control (including common control leasing arrangements) if neither the parent nor the legal entity being evaluated for consolidation are public business entities.

The proposed alternative would provide an accounting policy election that a private company would apply to all current and future legal entities under common control that meet the application criteria. If the private company elects to use this alternative, it would, nevertheless, be required to follow other consolidation guidance, such as, the voting interest entity guidance (unless another scope exception applies). Additionally, a private company would be required to provide detailed disclosures about its involvement with, and exposure to, the legal entity under common control.

The proposed ASU also would amend VIE guidance for related party arrangements.

The proposed ASU is available on this link.

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