On June 22, 2017 FASB proposed an Accounting Standards Update (ASU) to simplify and improve financial reporting associated with consolidation of variable interest entities (VIEs) for private companies.

Concerns: Private company stakeholders, Private Company Council (PCC), continue to express difficulty in applying VIE guidance to common control arrangements and requested that FASB address certain areas of VIE guidance for related parties under common control.

The proposed ASU would address private company concerns regarding the difficulty of understanding 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, which could not be applied to select common-control arrangements. A private company electing to use the alternative still would be required to follow other consolidation guidance, particularly the voting interest entity guidance, unless another scope exception applies.

Additionally, the proposed amendments require a private company to provide detailed disclosures about its involvement with and exposure to the legal entity under common control. The proposed ASU would also amend certain VIE guidance for related-party arrangements. More information on these amendments can be found in the FASB in Focus document.

The full exposure draft is available on the FASB website. Comments on the exposure draft are due by Sept. 5, 2017.