Many contractors participate in common-control leasing arrangements for their operating facilities. Under these arrangements, private operating companies create separate entities from which to lease their operating facilities in order to protect their assets.
Until recently, Generally Accepted Accounting Principle (GAAP) rules required private companies to consolidate these entities (known as variable interest entities, or VIE) for financial reporting purposes, thus making the reporting process more complex and costly for many companies.
Following its recent trend of rulings that alleviate financial pressure on small businesses, the Financial Accounting Standards Board (FASB) recently approved an alternative to the old VIE reporting standard. Under the new rules, lessees in common-control leasing arrangements that meet certain qualifications will be exempt from the requirement to consolidate. Instead, these companies will only need to make financial statement disclosures regarding their lease with the affiliated company.
If you’d like to know how the new GAAP reporting change affects your business, our Real Estate and Construction professionals are more than happy to assist you. Just leave a comment below or contact partner Roger Gingerich, CPA/ABV, CVA, CCA at 440-449-6800.
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