How do you determine if a company is a VIE?

Characteristics

  1. The entity does not have enough equity to finance its activities without additional subordinated financial support (e.g., the entity is thinly capitalized)
  2. The equity holders, as a group, lack any one of the common characteristics of a controlling financial interest:

What characteristics are normally examined in determining whether a company is a primary beneficiary of a variable interest entity?

The primary beneficiary of a variable interest entity is required to disclose (a) the nature, purpose, size, and activities of the variable interest entity, (b) the carrying amount and classification of consolidated assets that are collateral for the variable interest entity’s obligations, and (c) any lack of recourse …

Is a variable interest entity a related party?

Don’t assume GAAP for variable interest entities (VIEs) doesn’t apply to your clients. It deals with contractual and ownership interests (direct and indirect) and related party relationships commonly found in small and midsize nonpublic entities.

What is ASC 606?

ASC 606 is the new revenue recognition standard that affects all businesses that enter into contracts with customers to transfer goods or services – public, private and non-profit entities. Both public and privately held companies should be ASC 606 compliant now based on the 2017 and 2018 deadlines.

Is a JV a VIE?

Joint venture requirements A joint venture is generally considered a VIE if it meets one or more of the following conditions: The investors do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support.

Why do the risks and rewards from a VIE often get distributed to the primary beneficiary rather than equity investors?

Why do the risks and rewards from a VIE often get distributed to the primary beneficiary rather than equity investors? VIEs may separate ownership from the VIE’s economic benefits and risks to enable beneficial contracting (e.g., financing) for a primary beneficiary.

What is primary beneficiary?

A primary beneficiary is the person (or persons) first in line to receive the death benefit from your life insurance policy — typically your spouse, children or other family members. If the primary beneficiaries are all deceased, the secondary beneficiaries receive the death benefit.

Who does ASC 606 apply to?

FASB ASU No. 2014-09 will amend FASB Accounting Standards Codification® (ASC) by creating Topic 606, Revenue from Contracts with Customers and Subtopic 340-40, Other Assets and Deferred Costs—Contracts with Customers.

How does ASC 810-10 relate to common control entities?

ASC 810-10 retains the ARB 51 notion that the investor with the controlling financial interest should consolidate the investee/affiliate.

When does a primary beneficiary consolidate a vie?

After a primary beneficiary initially consolidates a VIE, the basic principles of consolidated financial statements for voting interest entities in ASC 810-10 apply to the primary beneficiary’s accounting for the consolidated VIE, with one exception.

How is consolidation guidance applied in topic 810?

Those disclosures could be combined in a single note or by including cross-references within the notes to financial statements. In addition, entities that elect this alternative should continue to apply consolidation guidance other than VIE guidance in Topic 810 as well as other applicable guidance, including Topics 460 and 840.

What are the requirements for consolidation in SFAS 167?

Instead, SFAS 167 establishes consolidation requirements for VIEs based on both a qualitative, rather than quantitative, assessment of an equity investor’s control over significant activities of the VIE and the equity investor’s retention of certain rights and obligations that are disproportionate to that investor’s investment.