accounting standards update

Under the amendments in Accounting Standards Update 2018-17, a private company will be able to elect not to apply Variable Interest Entities (VIE) guidance to legal entities under common control (including common control leasing arrangements) if both the parent and the legal entity being evaluated for consolidation are not public business entities, simply by adopting a new accounting policy election – all current and future legal entities under common control will have to follow the same practices.

There will still be a need to provide detailed disclosures about a company’s involvement with and exposure to the legal entity under common control.

By adopting this guidance, private companies will have the same result as the previous alternative not to apply VIE guidance under common control leasing arrangements with all other legal entities under common control.

This accounting alternative is expected to provide more useful and meaningful information to the users of private company financial statements – as many of the stakeholders aren’t necessarily concerned with common control entities.

For entities other than private companies, the amendments in this Update are effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The amendments in this Update are effective for a private company for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021. All entities are required to apply the amendments in this Update retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented. Early adoption is permitted.

Click here for additional details on Accounting Standards Update 2018-17.

For more information, visit www.fasb.org.

The Financial Accounting Standards Board (“FASB”) recently issued Accounting Standards Update (“ASU”) No. 2018-11 with targeted improvements to ASC Topic 842, Leases, to (1) add an optional transition method that would permit entities to apply the new requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the year of adoption, and (2) provide a practical expedient for lessors regarding the separation of the lease and non-lease components of a contract.

Prior to the amendments in ASU No. 2018-11, the upcoming requirements in ASC 842 had to be initially applied using a modified retrospective transition method under which lessees were required to recognize lease assets and lease liabilities on the balance sheet for all leases and provide the new and enhanced disclosures for each comparative period presented. In response to constituents’ concerns about unanticipated costs and complexities, ASU No. 2018-11 now allows entities, upon initial adoption, to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Under the new optional transition method, reporting for comparative periods presented must continue to follow the guidance under existing U.S. GAAP.

Continue Reading FASB Issues Targeted Improvements to New Lease Accounting Standard