For entities that have not yet adopted the amendments in ASU 2018-07, fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Sign up to receive articles and information on the topics that matter to you! Our team at Wipfli helps private and public companies meet all accounting standards. Despite this accounting alternative, the FASB continued to receive feedback that the VIE guidance was difficult to apply to common control arrangements, particularly due to the lack of contractual arrangements among these types of entities. These expedients and exceptions apply only to: Effective dates: March 12, 2020, through December 31, 2022. This ASU expands the opportunities for entities to use hedge accounting by making changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. 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Reiterates that while consolidation may no longer be required for certain entities, combined financials are still an option to show the combined results of entities under common control. Under the current VIE requirements, many companies are required to consolidate related entities even though they have no ownership interest. This ASU requires an entity to measure and classify share-based payment awards granted to a customer similar to share-based payments to employees in Topic 718. applying variable interest entities (VIE) guidance to a lessor entity under common control do not justify the related costs. Removes the following disclosure requirements: The amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, The policy for timing of transfers between levels, The valuation processes for Level 3 fair value measurements, The changes in unrealized gains and losses for the period included in earnings for recurring Level 3 fair value measurements held at the end of the reporting period. Under ASC 2014-07, a private company can elect to apply the exception to VIE guidance when— The first private company alternative issued was a major change to accounting for goodwill (ASU 2014-02). Private manufacturers often set up legal entities to hold real estate or operate separate business ventures. The following standards will go into in effect in the current fiscal year for private companies. The separate entity is known as a variable interest entity (VIE). On March 20, 2014, the FASB issued ASU 2014-07, Consolidation (Topic 810): Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements. Current accounting rules require financial data from such “variable interest entities” (VIEs) to be consolidated on … ASU 2018-17: A Private Company Accounting Alternative for Variable Interest Entities Under Common C, Accounting Standards Update (ASU) 2018-17, Consolidation: Targeted Improvements to Related Party Guidance for Variable Interest Entities. Under private company treatment, rather than carrying goodwill on the books at its original val… This ASU requires the accounting for shared-based payment transactions for acquiring goods and services from nonemployees to be accounted for in a similar manner as share-based payments to employees. This ASU adds a new Topic 848, Reference Rate Reform, to the Accounting Standards Codification (ASC), which provides optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. Whereas ASU 2014-17 was limited to lease arrangements with commonly controlled entities, the private company accounting alternative allowable under 2018-17 expands the scope to all qualifying common control arrangements. The reporting entity and legal entity are not under common control of a public business entity. This ASU allows a private company to elect not to apply variable interest entity (VIE) guidance to legal entities under common control (including common control leasing arrangements) if both the parent and the legal entity being evaluated for consolidation are not public business entities. Amends the guidance for determining whether payments to decision makers and service providers are variable interests by requiring consideration of indirect interests held through related parties. However, a private company that makes use of the latest amendments to Topic 810 must disclose in its financial statements its involvement with, … The list below depicts the evolution of VIE guidance through FASB ASU No. Adds the following disclosure requirements: The weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates, An explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period, Clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account, Adds unit-of-account guidance in Topic 808 to align with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of Topic 606, Requires that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer, Aligns the accounting for production costs of an episodic television series with the accounting for production costs of films by removing the content distinction for capitalization, Requires that an entity reassess estimates of the use of a film for a film in a film group and account for any changes prospectively, Requires that an entity test a film or license agreement for program material within the scope of Subtopic 920-350 for impairment at a film group level when the film or license agreement is predominantly monetized with other films and/or license agreements. A variable interest entity (VIE) refers to a legal business structure in which an investor has a controlling interest despite not having a majority of voting rights. However, entities will be required to disclose separately the amounts of transfers into and out of Level 3 of the fair value hierarchy and purchases of Level 3 plan assets. The ASU also provides guidance for evaluating indirect interests held through related parties under common control when determining whether a decision-making or service provider fee is a variable interest. This ASU introduced an accounting alternative for private companies that, if elected, simplifies and reduces the costs of accounting for certain common control leasing arrangements. What is a Variable Interest Entity? an accounting alternative to the consolidation of variable interest entities (VIE) for private companies was recently finalized. Applying the variable interest entity (“VIE”) guidance to private companies under common control Considering indirect interests held through related parties under common control for determining whether fees paid to decision makers and service providers are variable interests This ASU modifies the definition of the term collections for entities that maintain collections (primarily not-for-profit entities) and requires that a collection-holding entity disclose its policy for the use of proceeds from when collection items are deaccessioned (that is, removed from a collection). b. This often includes brother or sister entities under common control and determined to be a VIE based on the conclusion that the reporting entity is the primary beneficiary of the related entity. This ASU modifies the disclosure requirements on fair value measurements, including the following: Effective dates: Fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Variable interest entities (VIEs) Voting interest entities (VOEs) Equity method investments. The Variable Interest Entities subsections shall not be applied when making this determination. All entities are required to apply the amendments retrospectively. Please note two things: These effective dates are for private companies only; public business entities often have different effective dates, and those dates are not covered in this article. FASB has deferred these effective dates of certain standards for private companies: The following standards will be in effect in the upcoming fiscal year for private companies. Currently, private companies can elect not to apply the guidance within "Variable Interest Entities Subsections of Subtopic 810-10, Consolidation" when determining whether they should consolidate a legal entity, though this relief only applies in cases of … On October 31, 2018, the FASB issued ASU 2018-17, which amends two aspects of the related-party guidance in ASC 810.The ASU (1) adds an elective private-company scope exception to the variable interest entity (VIE) guidance for entities under common control and (2) removes a sentence in ASC 810-10-55-37D regarding the evaluation of fees paid to decision makers to conform with the amendments … ASU 2018-17: A Private Company Accounting Alternative for Variable Interest Entities Under Common Control – November 19, 2018 Businesses have been intensely focused on dealing with additional regulation surrounding variable interest entities (VIEs) since the fallout from Enron and other accounting scandals. FASB, with input from stakeholders and advice from the Private Company Council, has tried to improve and simplify accounting requirements for private company reporting in recent years. ASU 2014-07, Consolidation (Topic 810): Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements, allows the reporting entity/lessee to elect not to apply VIE guidance to a lessor entity under common control. An accounting alternative that was issued by the Financial Accounting Standards Board (FASB) on March 20 would – if certain conditions are met – exempt private companies from applying variable interest entity (VIE) guidance to lessors under common-control leasing arrangements. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract (hosting arrangement) with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Cohen & Company is not rendering legal, accounting or other professional advice. VIEs are defined as companies in which the controlling financial interest is not established based on a majority of voting rights. guidance in the Variable Interest Entities Subsections if criteria (a) through (c) are met and, in applicable circumstances, criterion (d) is met: a. Accounting Standards Update 2014-07, "Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements" (ASU 2014-07) permits private companies to elect not to consolidate VIEs under common control leasing arrangements that meet certain conditions. 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