Question

For each of the following research cases, search the FASB ASC database for information to address the issues. Copy and paste the FASB ASC paragraphs that support your responses. Then summarize briefly what your responses are, citing the paragraphs used to support your responses.

FASB ASC 1-1 Variable Interest Entities In this chapter, we discussed how Enron and other companies used special?purpose entities (SPEs) to keep the effects of transactions and events off corporate balance sheets. Accounting for SPEs is now guided by the requirements for variable interest entities (VIEs).

1. How does the FASB define a VIE? In other words, how does an entity qualify to be a VIE?

2. Is a company that meets the definition of a VIE required to consolidate the VIE?

Answer 1

The section is 810.10 of FASB but I have no access to the particular text of it as i dont have subsciption on FASB site so unable to copy paste that.

1. As per FASB. VIE are those entities whose equity investment at risk is not sufficient to allow the legal entity to finance its activity without additional financial support. Entities qualify to be an VIE when they lack the power to direct activities of a legal entity that impact the entity's economic performance. have to adjust losses of legal entitiy, and have right to receive expected residual returns of legal entity.

2. No, a company that meets the definition of a VIE required to consolidate the VIE, According to ASC 810-10-25-38, a reporting entity would be elegible to consolidate a VIE when they have a variable interest which provides them with a controlling financial interest.