The variable interest entity (VIE) GAAP alternative created by the Private Company Council (PCC) was released on Thursday, giving private companies a new option for possible cost savings in their financial reporting.

FASB released Accounting Standards Update 2014-07 describing the alternative.

  • An alternative that 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.
  • Conditions that need to be met:
    • Private company lessee and the lessor are under common control
    • Private company lessee has a leasing arrangement with the lessor
    • Substantially all of the activity between the private company lessee and the lessor is related to leasing activities (including supporting leasing activities) between those two companies, and
    • If the private company lessee explicitly guarantees or provides collateral for any obligation of the lessor related to the asset leased by the private company, then the principal amount of the obligation at inception does not exceed the value of the asset leased by the private company from the lessor.
  • If the alternative above is elected, the alternative should be applied to all leasing arrangements meeting the above conditions.
  • The alternative should be applied retrospectively to all period presented and becomes effective for annual periods beginning after December 15, 2014 but early adoption is permitted for all financial statements that have not yet been made available for issuance.