In March 2014, FASB issued Accounting Standards Update (ASU) 2014-07, Consolidation (Topic 810): Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements, a consensus of the Private Company Council. If any of the criteria subsequently cease to be met, ASC 810-10-15-17C requires the private company to apply the VIE guidance on a prospective basis, as of the date the arrangement no longer qualifies for the accounting alternative. Qualifying criteria and practical considerations are discussed, and illustrations are presented to 1) assist preparers and management of private companies in deciding whether to adopt this accounting alternative and 2) educate other stake-holders as to the consequences. relevance of disclosures considering the needs of the users. document.write('<'+'div id="placement_456219_'+plc456219+'">'); Under the guidance now codified in ASC Topic 810, a legal entity need not be evaluated under the VIE guidance if three criteria are met, with a fourth requirement necessary under certain circumstances: The first three criteria must be periodically reassessed to ensure that they continue to be satisfied. This instructive white paper outlines common pitfalls in the preparation of the statement of cash flows, resources to minimize these risks, and four critical skills your staff will need as you approach necessary changes to the process. It's important to note that the Private Company Decision-Making Framework helps FASB and the PCC identify: Additionally, the framework observes that many private companies have multiple entities under common control, which often results in transactions with affiliates and other related parties. After considering the feedback received from the PCC and additional outreach, the board decided to develop a private company accounting alternative for common control arrangements that meet certain criteria. She also serves as the FASB liaison to the PCC and chairs the Emerging Issues Task Force. Private companies electing the accounting alternative will have to provide detailed disclosures about their involvement with and exposure to the legal entity under common control. ASC Topic 810 provides two models for determining whether consolidation of one entity by another is necessary based upon the concept of a “controlling financial interest.” These are 1) the voting interest model and 2) the VIE model. Examples of Common Control Leasing Arrangements and the Election in ASU 2014-07. Two primary models can be used for assessment. Moreover, before making the election, management should also ensure that the financial statements reflecting the accounting alternative will be accepted by key users. Footnotes can be incorporated onto the face of the financial statements. var div = divs[divs.length-1]; A majority of comment letters from constituents received in response to the exposure draft that became ASU 2014-07 requested that a definition of common control be included in the final standard because no such definition presently exists in the ASC. The first step is to determine whether a legal entity is a VIE, which is assessed by reference to the provisions of ASC 810-10-15-14. Sample Disclosure — Change in Tax Laws Affecting Future Periods Changes in tax laws and rates may affect recorded deferred tax assets and liabilities and our effective tax rate in the future. With the assistance of the PCC, the board performed outreach to learn whether consolidation of another legal entity under the same common control as the private company reporting entity provides users of private company financial statements with decision-useful information. Often, if the private company provides financial statements in which another legal entity under common control is consolidated, users request consolidating schedules to enable them to reverse the effects of consolidation. In other words, the alternative cannot be applied selectively to different common control arrangements. Please review each disclosure for its applicability to your organization and the need for disclosure in your organization’s financial statements. 2014-07, Consolidation (Topic 810): Applying Variable Interest Entities Guidance to Common Control Leasing ASU 2014-09 becomes effective for annual reporting periods beginning after December 15, 2017, at which point we plan to adopt the standard. A business’s financial report is much more than just the financial statements; a financial report needs additional information, called disclosures. disclosure standpoint (that is, the disclosures in ASC 810-10-50-4 and 50-5A that apply to a reporting entity that holds a variable interest in a VIE, but is not the VIE’s primary beneficiary). Since neither FASB nor the SEC has provided specific transition guidance in these situations, it appears that private companies must retroactively restate their financial statements to apply public company accounting and reporting requirements to all periods presented. While this can be beneficial to companies and their stakeholders, the criteria for election are important, and management and their advisors should take them into consideration before electing the alternative. 46 (FIN 46), Consolidation of Variable Interest Entities, in January 2003 and subsequently revised the Interpretation in December 2003. 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities.). By using the site, you consent to the placement of these cookies. Need for judgement Specific guidance on materiality and its application to the financial statements is included in paragraphs 29–31 of IAS 1 Presentation of Financial Statements. 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