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18.9 Considerations for private companies
Publication date: 30 Sep 2023
us Financial statement presentation guide
Guidance in ASC 810-10-15-17AC through ASC 810-10-15-17AF allows reporting entities that are not public business entities to elect to not apply the VIE consolidation guidance to a legal entity under common control (including common control leasing arrangements) if both the parent and the legal entity being evaluated for consolidation are not public business entities.
If elected, the private company should apply other consolidation guidance, particularly the voting interest entity guidance, unless another scope exception applies. Under the accounting alternative, a private company that neither consolidates nor applies the VIE guidance to a legal entity under common control should disclose the following:
Excerpt from ASC 810-50-2AG
- The nature and risks associated with a reporting entity's involvement with the legal entity under common control.
- How a reporting entity's involvement with the legal entity under common control affects the reporting entity's financial position, financial performance, and cash flows.
- The carrying amounts and classification of the assets and liabilities in the reporting entity's statement of financial position resulting from its involvement with the legal entity under common control.
- The reporting entity's maximum exposure to loss resulting from its involvement with the legal entity under common control. If the reporting entity's maximum exposure to loss resulting from its involvement with the legal entity under common control cannot be quantified, that fact shall be disclosed.
- If the reporting entity's maximum exposure to loss (from d.) exceeds the carrying amount of the assets and liabilities (from c.), the reporting entity should provide qualitative and quantitative information to allow users of financial statements to understand the excess exposure. That information should include, but is not limited to, the terms of the arrangements, considering both explicit and implicit arrangements, that could require the reporting entity to provide financial support (for example, implicit guarantee to fund losses) to the legal entity under common control, including events or circumstances that could expose the reporting entity to a loss.
Excerpt from ASC 810-50-2AH
In applying the disclosure guidance in paragraph 810-10-50-2AG(d) through (e), a reporting entity under common control shall consider exposures through implicit guarantees. Determining whether an implicit guarantee exists is based on facts and circumstances. Those facts and circumstances include, but are not limited to, whether:
- A reporting entity has an economic incentive to act as a guarantor or to make funds available.
- A reporting entity has acted as a guarantor for or made funds available to the legal entity in the past.
PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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