The FASB issued a new standard in March 2014 to provide private companies relief from the variable interest entity (VIE) model. The new guidance is likely to result in reduced consolidation of lessor entities by lessees. The purpose of the standard was to reverse these consolidations since users indicated the resulting financial statements were not useful. Adoption of the new standard is optional. Private companies that elect to adopt the new standard must meet specific criteria. Those that qualify will likely need to classify and record the lease (as capital or operating) and account for any executory contracts between the lessee and lessor (that had previously been eliminated in consolidation). The standard is effective from the beginning of 2015 for calendar year-end companies and requires full retrospective application. Early adoption is permitted if a company’s financial statements have not yet been made available for issuance.
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