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Many reporting entities lease properties from sister entities (the lessor) that are under the control of a common parent. These arrangements are required to be analyzed under the VIE consolidation guidance, which may lead to the lessee consolidating the lessor. However, a nonpublic business entity (referred to in this section as a private company) may elect not to apply the VIE model to these arrangements if the criteria in ASC 810-10-15-17AB are met. If the private company lessee qualifies and adopts this accounting policy, it should disclose information about the lessor legal entity in addition to the disclosures required by other accounting standards in a single note or by cross-referencing within the footnotes. These disclosures include the following:
  • The amount and key terms of liabilities recognized by the lessor that could potentially require the private company lessee to provide financial support to the lessor (such as amount of debt, interest rate, maturity, pledged collateral, and guarantees of the debt)
  • A qualitative description of circumstances not recognized in the financial statements of the lessor that could potentially require the private company lessee to provide financial support to the lessor
The lessor entity may have recognized outstanding debt obligations, environmental liabilities, or asset retirement obligations in its stand-alone financial statements that the private company lessee should consider when making such disclosures. Additionally, the private company lessee may have unrecognized commitments and contingencies related to the common control leasing arrangement that should also be considered for disclosure.
The private company should disclose guarantees associated with these arrangements in addition to the disclosures required by other accounting standards (e.g., ASC 460, ASC 850, and ASC 840) and may combine them in a single footnote or by cross-referencing other footnotes.
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