Last week, the Financial Accounting Standards Board (FASB) issued a GAAP alternative which allows private companies to elect not to consolidate variable interest entities (VIEs) in common control leasing agreements.

Who is affected by this update?

This applies to all entities other than a public business entity, a not-for-profit entity, or an employee benefit plan within the scope of topics 960-965 on plan accounting.

Why is this important?

The new guidance allows a private company to elect—when certain conditions exist—not to apply VIE guidance to a lessor under common control. Instead, the private company would make certain disclosures about the lessor and the leasing arrangement.

According to FASB, “This will improve financial reporting for users of private company financial statements, while reducing the cost and complexity associate with applying VIE guidance to leasing arrangements under common control. The alternative is intended to help lenders and other users better align the information used in assessing the financial information using financial statements.”

Where can I learn more?

The ruling is on the FASB website.  They also have a brief video from Larry Smith and Larry Weinstock, FASB and Private Company Council board members, explaining the update.

PKF Texas can help you interpret if and how it is applicable to your business.