Private company VIE alternative

In October 2018, the FASB issued Accounting Standards Update (ASU) 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities, providing private companies an alternative to not apply variable interest entity (VIE) guidance to certain common control arrangements. Effectively, the amendments in ASU 2018-17 expand and supersede the private company alternative provided by ASU 2014-07, Consolidation (Topic 810): Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements (A Consensus of the Private Company Council), permitting the alternative to be applied to all qualifying common control arrangements for private companies.

This ASU is expected to provide significant relief in accounting for VIEs if elected by private companies, however the election is not as simple as checking a box and can have unexpected consequences which we outline in this two-part series.

In part I we provide an overview of the PCC alternative covering:

• Criteria to qualify to elect the alternative

• The definition of common control

• Option to use combined financial statements

• How and when entities may elect PCC alternatives

• Disclosure requirements, including examples.

In part II we shift out focus to explore the disclosure requirements and other financial statement reporting impacts more fully, covering the following topics:

• Reporting implications for audits, reviews, compilations

• Communications with Those Charged With Governance (TCWG)

• Impact of prior year GAAP departures

• Accounting policy and other disclosures potentially impacted

• Firm wide quality control considerations