Conversely, where equity investors have these characteristics and the other requirements in Interpretation no. A VIE’s primary beneficiary is the entity that will consolidate it in its financial statements.In some cases, it is relatively easy to determine which entity is the primary beneficiary through a qualitative analysis of the entity’s ability to make decisions about the VIE and share in its profits or losses.
It focuses on controlling financial interests achieved by means other than voting.
Where there is no voting interest, a company’s exposure to the assets’ risks and rewards represent the best evidence of control.
The equity at risk should be sufficient for the VIE to finance its activities without additional support.
A VIE’S PRIMARY BENEFICIARY TYPICALLY IS ABLE to make decisions about the entity and share in profits and losses.
AMONG ENRON’S PROBLEMS WAS ITS USE of variable interest entities, which allowed it to leave significant amounts of debt off its balance sheet.
In response to concern about this practice, FASB issued Interpretation no.
In response to widespread concerns about this business practice, FASB issued Interpretation no.
46, to address consolidation requirements for businesses that are affiliated with VIEs. 46(R) addresses the consolidation of business enterprises where the usual consolidation condition—ownership of a majority voting interest—does not apply.
Public companies were required to implement the consolidation provisions in Interpretation no. Private companies with an interest in a VIE that was created after December 31, 2003, should have consolidated those entities immediately.