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The Financial Accounting Standards Board has released Accounting Standards Update No. 2018-17, "Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities," expanding the nonpublic company alternative that allows nonpublic companies to elect not to apply VIE guidance to legal entities under common control. The current guidance supersedes the 2014 nonpublic company exception applying to common control leasing agreements and, if elected, must be applied to all applicable entities under common control. Entities must meet the following criteria to qualify:

  1. The reporting entity and the legal entity are under common control.
  2. The reporting entity and the legal entity are not under common control of a public business entity. 
  3. The legal entity under common control is not a public business entity. 
  4. The reporting entity does not directly or indirectly have a controlling financial interest in the legal entity when considering the general subsections of this topic. The variable interest entities subsections shall not be applied when making this determination. 

The amendments in the update are effective for a nonpublic company for fiscal years beginning after Dec. 15, 2020, and interim periods within fiscal years beginning after Dec. 15, 2021. The amendments must be applied retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented. Early adoption is permitted. For more information contact us in one of our many locations