Changes to Current GAAP

Amends the private company alternative used for applying the consolidation rules to variable interest entities (VIEs) by allowing a private company to make an accounting policy election to not apply VIE guidance to legal entities under common control when certain criteria are met.

Effective Date

The change is effective for fiscal years beginning after December 15, 2020; which, for our December 31st clients, this means the fiscal year ending December 31, 2021.  However, an important note is that early application is permitted.

Who is Affected?

Applies to private companies.

Prior to the Amendment

Private companies were limited to using the alternative approach for only those entities in which there were leasing activities between the entities.

Main Provisions

The alternative approach can be elected if all of the following circumstances exist:

a. The reporting entity and the legal entity are under common control.

b. The reporting entity and the legal entity are not under common control of a public business entity.

c. The legal entity under common control is not a public business entity.

d. The reporting entity does not directly or indirectly have a controlling financial interest in the legal entity.Adds several new disclosure requirements to provide detail about its involvement with, and exposure to, the legal entity under common control.

Implementing

Retrospectively

Changes to the Disclosures

Be sure to update your Significant Accounting Policy footnote to include a disclosure stating that the accounting alternative was elected as well as add the new disclosure requirements.