FASB PROPOSES IMPROVEMENTS TO CONSOLIDATION GUIDANCE
Proposed standard based on recommendations from the Private Company Council
Norwalk, CT, June 22, 2017—The Financial Accounting Standards Board (FASB) today issued a proposed Accounting Standard Update (ASU) intended to reduce the cost and complexity of financial reporting associated with consolidation of variable interest entities (VIEs). The proposed ASU is based on recommendations from the Private Company Council (PCC).
The proposed ASU would address private company concerns around the difficulty of navigating and 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 both the parent and the legal entity being evaluated for consolidation are not public business entities.
The accounting 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 criteria for applying this alternative—it could not be applied to select common control arrangements. If the alternative is elected, a private company still would be required to follow other consolidation guidance, particularly the voting interest entity guidance, unless another scope exception applies. Additionally, it would require a private company to provide detailed disclosures about its involvement with and exposure to the legal entity under common control.
The proposed ASU also would amend certain VIE guidance for related party arrangements. More information on these amendments can be found in the FASB In Focus document.
Stakeholders are asked to review and provide comment on the proposed ASU by September 5, 2017.
About the Financial Accounting Standards Board
Established in 1973, the FASB is the independent, private-sector, not-for-profit organization based in Norwalk, Connecticut, that establishes financial accounting and reporting standards for public and private companies and not-for-profit organizations that follow Generally Accepted Accounting Principles (GAAP). The FASB is recognized by the Securities and Exchange Commission as the designated accounting standard setter for public companies. FASB standards are recognized as authoritative by many other organizations, including state Boards of Accountancy and the American Institute of CPAs (AICPA). The FASB develops and issues financial accounting standards through a transparent and inclusive process intended to promote financial reporting that provides useful information to investors and others who use financial reports. The Financial Accounting Foundation (FAF) supports and oversees the FASB. For more information, visit www.fasb.org.