Financial Reporting-Change to Variable Interest Entity (VIE) Guidance
Under ASU 2014-07, private companies may now elect an alternative not to apply the existing VIE guidance to lessor entities under common control, if certain criteria are met. This update was issued to address concern of private company stakeholders that the benefit of applying the existing guidance doesn’t justify the costs.
This alternative may be elected when an entity has a lease arrangement with a lessor entity under common control, provided:
- The two entities are under common control
- Substantially all of the activities between the two entities are related to the leasing activities
- If the lessee explicitly guarantees or provides collateral for any obligation of the lessor entity and the principal amount of the obligation doesn’t exceed the value of the asset leased
Under the alternative, the lessee would be required to provide certain disclosures about the lessor entity, most of which would be related to the related party aspects of the arrangement and guarantees, if applicable.
Effective Date: Annual reporting periods beginning after December 15, 2014 with early application permitted.
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