2. 2 ksmcpa.com
▪ ASU 2014-07: Applying Variable Interest Entities
Guidance to Common Control Leasing
Arrangements
▪ ASU 2014-02: Accounting for Goodwill
▪ ASU 2014-03: Accounting for Certain Receive-Variable,
Pay-Fixed Interest Rate Swaps (Simplified
Hedge Accounting Approach)
Accounting Standard Updates Covered
3. 3 ksmcpa.com
▪ Annual periods beginning after December 15, 2014; early
application permitted
▪ These updates apply to private company financial
statements
▪ Private companies must elect to use the alternatives
Effective Date for Accounting Standard
Updates
5. 5 ksmcpa.com
▪ Most popular ASU issued impacting privately held
businesses
▪ Impact is significant for private companies
▪ Allows private companies to deconsolidate certain variable
interest entities
▪ Accomplishes what the user needs through disclosure of
leasing arrangements versus consolidation
ASU 2014-07
8. 8 ksmcpa.com
▪ Common Control - Not defined by guidance; intuitive in nature;
target is exact same ownership
▪ Leasing Arrangement – Leasing an asset (real estate and
equipment); employees are excluded
▪ Leasing Activity – Substantially all the activity between the
private company/lessee and the VIE/lessor are related to
leasing activities
▪ Explicit Guarantee or Collateral
- Provide a guarantee or collateral for the VIE/lessor related to
the asset leased by the private company
- Principal amount of the debt cannot exceed the value of the
asset leased by the private company from the VIE/lessor
Four Criteria
9. 9 ksmcpa.com
▪ Removal of VIE from the consolidated financial statements
▪ Prepare comparative financial statements and footnote
disclosures
▪ A note would be added to the notes of the financial
statements discussing the change in accounting principle
▪ The notes to the financial statements would also need to
be updated for related party rent or lease expense, future
minimum rentals and any guarantees
▪ If an audit, emphasis of a matter added in the auditors’
report
Impact on Financial Statements and
Disclosures
10. 10 ksmcpa.com
▪ Allows private companies to amortize goodwill over a 10
year period
▪ Saves time and money by eliminating the two-step
impairment test
▪ Satisfies the users of the financial statements needs as it
removes an asset that a bank would not allow a company
to borrow against
ASU 2014-02
11. 11 ksmcpa.com
▪ Number that was agreed upon by the PCC
▪ Tax law requires goodwill be amortized over a 15 year
period
10 Year Amortization Period
12. 12 ksmcpa.com
▪ Still would apply but is not required
▪ Required only in instances where there are indicators of
impairment (trigger-based impairment test)
▪ Some indicators of impairment would include the following:
- Significant downturn in the economy
- Internal issues such as the loss of key personnel or
customers
▪ If indicators identified, apply one-step test
▪ Need to test goodwill impairment at the reporting unit level
or entity level
Impairment Test
13. 13 ksmcpa.com
▪ A disclosure would be added to the notes of the financial
statements discussing the change in accounting principle
▪ No need to adjust prior year financial statements
▪ If an audit, emphasis of a matter added in the auditors’
report
Impact on Financial Statements and
Disclosures
14. 14 ksmcpa.com
▪ Applies to plain vanilla interest rate swaps that are
receive-variable, pay-fixed swaps.
▪ This type of hedging arrangement allows the private
company to swap a variable interest rate loan for a fixed
interest rate loan to hedge the risk of rising interest rates.
▪ Typically swap arrangements are embedded within the
loan agreement with the bank.
ASU 2014-03
15. 15 ksmcpa.com
Private
Company –
Pays Fixed
Interest Rate
Bank –
Receives
Variable Interest
Rate
Counterparty –
Plays the Float
Between the
Fixed and
Variable Interest
Rates
Parties Involved In An Interest Rate Swap
Arrangement
16. 16 ksmcpa.com
1. Debt and the swap have to be based on the same interest
rate index and same reset period
2. There is no floor or cap on the variable rate amount
3. The repricing and settlement dates on the swap and debt are
the same date or do not differ by more than a couple days
4. The fair value of the swap should be at or near zero at
inception
5. The notional amount of the swap should match the principal
being hedged
6. All interest payments occurring on the borrowings during the
term of the swap are designated as hedged whether in total
or in proportion to the principal amount of the borrowings
being hedged
Six Conditions for Application
17. 17 ksmcpa.com
▪ The borrower has until the date the financial statements
are issued to document the hedge relationship
▪ Hedge effectiveness is assumed
▪ Private company can assume that settlement value equals
fair value
▪ Private company can value the derivative without taking
into account non-performance risk on the part of the
counterparty
▪ Private company still books the derivative with the offset to
other comprehensive income as an unrealized gain or loss
Simplified Hedging Approach
18. 18 ksmcpa.com
▪ Entity will still have all the disclosures it would normally
have with any derivative
▪ Notes to the financial statements will still include the
tabular format with Level 1, Level 2 and Level 3
▪ Only difference is that settlement value can be assumed to
be fair value
▪ Essentially there is no disclosure relief
▪ Change in accounting policy would be added to the notes
to the financial statements
▪ If an audit, emphasis of matter added in the auditors’
report
Impact on Financial Statements and
Disclosures
19. 19 ksmcpa.com
▪ Accounting for Identifiable Intangible Assets in a Business
Combination
- Only recognize and measure assets capable of being
sold or licensed independently
- Two assets not meeting the principle include
non-compete agreements and customer related
intangibles
- Final ASU has not been issued yet
PCC Issue No. 13-01A
