Private-Company Relief From Accounting Consolidations Coming

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By Denise Lugo

FASB in July will propose steps to make it easier for private companies to determine if they must consolidate onto their balance sheets a variable interest that they have in another entity that is under common control.

Under current rules, variable interest entities (VIEs) are types of capitalized businesses established in some cases to maintain financial assets, or provide an investment with financing. Companies use VIEs to avoid putting the whole firm in jeopardy. Because the VIE doesn’t have enough capital to operate on its own, the company that has controlling interest must consolidate its financial statements to include the VIE.

To be able to apply the private-company alternative the Financial Accounting Standards Board is considering, the reporting entity, the common control parent and the legal entity being evaluated for consolidation can’t be a public business, the board’s May 18 discussions affirmed. In choosing the election, a company would also have to provide detailed disclosures.

Private company practitioners have said consolidation rules under ASC 810 often require them to hire consultants to navigate the rules and therefore adds to compliance and reporting costs.

FASB’s decisions, approved on a 4-3 vote, followed a review of feedback brought to the board from external reviewers of a staff draft of the potential rules. FASB also weighed benefits and costs of the changes.

“The benefits are justified in this case by a reduction in the cost. I support moving forward,” FASB Vice Chairman James Kroeker said. “I do struggle a little bit with the scope and whether or not we should limit thee decisions only to private companies,” he said.

Companies will have 75 days to comment on the changes. Three board members, Marc Siegel, Lawrence Smith and Christine Botosan plan to dissent.

To contact the reporter on this story: Denise Lugo in New York at

To contact the editor responsible for this story: S. Ali Sartipzadeh at

For More Information

A staff background paper on the private company issue for VIEs is at

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