The FASB recently endorsed an accounting alternative within U.S. GAAP that will allow private companies to not apply variable interest entity (VIE) accounting requirements for common control leasing arrangements when certain conditions are met. The alternative was proposed by the Private Company Council (PCC), and the FASB expects to issue the final standard in late March. The alternative will be available for early adoption for any financial statements that have not yet been made available for issuance. We discussed accounting standards previously adopted by the PCC in our January 17 post.

Current U.S. GAAP requires an entity to consolidate a VIE when that reporting entity is considered to be the primary beneficiary of the VIE. As a result, VIE requirements could, in certain circumstances, require a lessee to consolidate a lessor entity when both entities are under common control. The PCC-endorsed alternative standard provides that the private company lessee may elect to not consolidate the lessor entity when the arrangement between a private company lessee and a lessor entity meets certain conditions, which include that the leasing arrangement is substantially all of the activity between the companies.

The PCC is an organization created in 2012 by the Financial Accounting Foundation’s board of trustees to examine whether private companies should have different accounting standards.