VIE Consolidation Exemption and Other Accounting Updates
Private Company Council – Generated US GAAP Updates
VIE Consolidation Exemption
On February 19, 2014, the Financial Accounting Standards Board (“FASB”) endorsed the Private Company Council (“PCC”) initiated accounting alternative that will offer private companies an exemption from applying the variable interest entity (“VIE”) consolidation model to certain common control leasing arrangements.
The FASB expects to issue the final standard in late March of 2014, and early adoption will be available for private companies’ financial statements ready for issuance immediately when the final standard is issued.
What does this mean to you?
It is anticipated that this exemption to the VIE consolidation model will provide relief to many private companies from the costly and unnecessary consolidated presentation of certain real estate leasing entities with their related party operating entities.
Recently Issued US GAAP Updates (PCC Related)
On January 16, 2014, the FASB issued two updates to US GAAP, ASU 2014-02 Intangibles – Goodwill and Other (Topic 350): Accounting for Goodwill and ASU 2014-03, Derivatives and Hedging (Topic 815): Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps – Simplified Hedge Accounting Approach.
The amendments in both ASU 2014-02 and 2014-03 are effective for annual periods beginning after December 15, 2014. Earlier application is permitted.
What does this mean to you?
The provisions of (Topic 350): Accounting for Goodwill allows a private company to amortize goodwill on a straight-line basis over 10 years, or less if appropriate. The requirement for impairment testing of goodwill is expected to be less frequent.
The provisions of (Topic 815): Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps – Simplified Hedge Accounting Approach will result in income statement charges for interest expense to be similar to the amount that would result if the entity had directly entered into a fixed-rate borrowing instead of a variable-rate borrowing and a swap agreement. These provisions remove the requirement to have hedge documentation in place at the date of the hedge inception as required by current US GAAP. The complexity of the documentation requirements have precluded many private companies from adopting hedge accounting and caused significant income statement volatility. In addition, the requirements to include the fair value footnote disclosures, often considered lengthy and confusing, are not required for swaps adopting these accounting provisions.
Financial Reporting Framework for Small and Medium Sized Entities (“FRF for SMEs”) Issued by the AICPA
The FRF for SMEs issued by the AICPA in June of 2013 is an “Other Comprehensive Basis of Accounting” framework available to non-public entities. The FRF for SMEs framework provides relief to privately held companies from many complex, onerous, and costly accounting requirements and disclosures. We have assisted several of our clients adopt the FRF for SMEs framework with very successful results. Clients and lenders have enjoyed the ease of analysis provided by the concise and transparent presentation.
How can we help you?
Your Clayton & McKervey advisor and engagement team are available to guide you through the various accounting alternatives available and help you determine the most beneficial financial statement presentation for your needs today and in your future.