Breaking News! A new accounting alternative for private companies has been approved by the Financial Accounting Standards Board. Find out more about the new guidance for applying variable interest to common control leasing arrangements by reading this blog written by FD Partner Sean Lager.
On February 19th the Financial Accounting Standards Board (FASB or Board) approved an accounting alternative within U.S. GAAP for private companies finalized by The Private Company Council (PCC) in its January meeting.
Under the new guidance the following four conditions should exist to qualify for this accounting alternative:
- The private company lessee and the lessor entity are under common control
- The private company lessee has a leasing arrangement with the lessor entity
- Substantially all of the activity between the two entities is related to the leasing activity of the lessor entity to the private company lessee.
- Any obligation of the lessor that is being guaranteed or collateralized by the private company lessee could, at inception of the obligation, be sufficiently collateralized by the asset(s) leased to the private company.
The PCC had originally included a criterion which would have provided significant restrictions to private companies. The criterion that was originally included noted that “the obligations of the lessor entity, if any, are only collateralized by the assets leased by the private company lessee and not by assets of the private company lessee”. The criterion was removed by the PCC at its January meeting and replaced with criterion (4) noted above.
So what does this mean? If a private company lessee elects to adopt this accounting alternative, it would be an accounting policy election applicable to all leasing arrangements that meet the requirements for applying this approach.
This alternative would be applied using a full retrospective approach in which financial statements for each individual prior period presented and the opening balances of the earliest period presented would be adjusted to reflect the period-specific effects of applying the alternative.
The alternative would be effective for the first annual period beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015. Early application is permitted, including application to any period for which the private company’s annual or interim financial statements have not yet been made available for issuance.
The final document is expected to be issued by the end of March.
If you have questions about the implications of either of these changes, please contact Frazier & Deeter.
This accounting update provided by Sean Lager, Partner in Frazier & Deeter’s Assurance practice. Sean is a member of the Technical Issues Committee of the American Institute of Certified Public Accountants. The Technical Issues Committee works with the Financial Accounting Standards Board, Auditing Standards Board and Governmental Accounting Standards Board to represent the views of accounting firms and their clients in the standards-setting process.