Variable Interest Entity Updates
May 27, 2014
Do you have consolidated financial statements due to a variable interest entity (VIE)? If so, there is a possibility you no longer have to consolidate the VIE into your financial statements. The FASB has issued Accounting Standards Update (ASU) No. 2014-07, Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements. This guidance addresses the consolidation of lessors in certain common control leasing arrangements. ASU No. 2014-07 allows a private company to elect not to apply the variable interest entity guidance to a lessor under common control if certain conditions are met.
These conditions include the following:
- The private company lessee and the lessor are under common control;
- The 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 the 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 these four criterion are met, and the private company elects not to apply the variable interest entity guidance, certain disclosures about the lessor and the leasing arrangement are required. For further details, contact your William Vaughan Company representative.
By: Ryan Leininger, CPA