Consolidation Amendments Proposed to Help Private Companies

June 28, 2017

Giving private companies an easier way to apply its guidance for consolidation reporting, the Financial Accounting Standards Board (“FASB”) has issued Proposed Accounting Standards Update No. 2017-240, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities.

The proposed changes to Accounting Standards Codification 810, Consolidation, exempts private companies from using guidance on variable interest entities for certain common control lease arrangements and related legal structures. Instead, private companies must use an accounting policy alternative for other businesses under common control that follow the same criteria. Only some common control arrangements, however, would qualify for the alternative.

The objective of the proposed guidance is to require detailed disclosures regarding private companies’ involvement with legal entities under common control. Private companies will have to reveal how their participation with the common control entity impacts their financial position, level of risk, and the assets and liabilities on their balance sheets that show their interest in the entity. In addition, private companies will have to admit whether they are unable to disclose how much could be lost from their investment. If the amount lost is higher than a private company’s book value, then it must offer a detailed description of its exposure.

Comments on the proposal are due to the FASB by Tuesday, September 5.