Last week the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-07 Applying Variable Interest Entity Guidance to Common Control Leasing Arrangements. The ASU is the culmination of the development of the Private Company Council's accounting alternative for variable interest entity (VIE) accounting. As discussed in our MHM Messenger issued in on February 26, this alternative is intended to provide qualifying private companies the opportunity to elect an accounting treatment that is less costly to, and more relevant than, existing US Generally Accepted Accounting Principles (US GAAP) requiring the application of the VIE consolidation model to commonly controlled leasing arrangements.

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Last week the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update (ASU)
2014-07 Applying Variable Interest Entity Guidance
to Common Control Leasing Arrangements. The ASU
is the culmination of the development of the Private
Company Council’s accounting alternative for variable
interest entity (VIE) accounting.
As discussed in our MHM Messenger issued on
February 26, this alternative is intended to provide
qualifying private companies the opportunity to
elect an accounting treatment that is less costly
to, and more relevant than, existing US Generally
Accepted Accounting Principles (US GAAP) requiring
the application of the VIE consolidation model to
commonly controlled leasing arrangements.
An entity adopting this standard will be permitted to
elect out of applying the VIE model to entities it is
involved with through certain leasing arrangements.
When made, the election must be applied to all
qualifying leasing arrangements and the standard
must be implemented retrospectively.
If a private company electing this accounting
alternative determines that it will no longer consolidate
a commonly controlled lessor entity under the VIE
model, it may result in deconsolidation of the lessor
March 2014
Adoption Permitted for PCC Common Control Leasing VIE Guidance
entity. A deconsolidation must be reflected in all prior
periods presented in the financial statements the year
it is adopted. The retrospective adoption may result in
a cumulative effect adjustment to beginning retained
earnings.
In addition to not applying the VIE model to a qualifying
lease arrangement, ASU 2014-07 requires additional
disclosures and requires that other appropriate US
GAAP, such as the voting interest model and lease
accounting, be applied to the lease arrangement.
Qualifications for Adoption
A reporting entity qualifies to be able to elect this
accounting treatment if it is a private company. An
entity is a private company when it is not any of the
following:
• Not-for-profit entity
• Employee benefit plan, or
• Public business entity as defined by ASU 2013-12
A leasing arrangement qualifies for the election out of
the VIE consolidation model when it meets all of the
following criteria:
• The private company lessee and the lessor legal
entity are under common control.
• The private company lessee has a lease
arrangement with the lessor legal entity.
• Substantially all activities between the private
company lessee and the lessor legal entity are
related to leasing activities between those entities.

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The information in this MHM Messenger is a brief summary and may not include all the details relevant to your situation.
Please contact your MHM auditor to further discuss the impact on your audit or audit report.
• If the private company lessee explicitly guarantees
or provides collateral for any obligation of the
lessor legal entity related to the asset leased by
the private company, then the principal amount of
the obligation at inception of such guarantees or
collateral arrangement does not exceed the value
of the asset leased by the private company from
the lessor legal entity.
Adoption
ASU 2014-07 is effective for periods beginning
after December 15, 2014. However, early adoption
is permitted, including adoption for any financial
statements that have not yet been made available for
issuance. Therefore, a calendar-year company that
qualifies may adopt this standard for its December 31,
2013 financial statements if they have not been made
available for issuance.
A private company considering adopting this standard
should carefully consider the benefits that may result
from not applying the VIE consolidation guidance, the
needs of its financial statement users, as well as the
potential costs that would be incurred if reversal of the
election was necessary in the event that it becomes a
public business entity.
For More Information
If you have any specific questions, comments or
concerns, please share them with Ernie Baugh or
James Comito of MHM’s Professional Standards
Group or your MHM service professional. You can
reach Ernie at ebaugh@mhm-pc.com or 423.870.0511
and James at jcomito@cbiz.com or 858.795.2029.