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Understanding Variable Interest Entities

Variable interest entity refers to an entity subject to consolidation according to certain provisions. Variable interests in a variable interest entity are contractual, ownership, or other pecuniary interests in an entity that change with changes in the fair value of the entity’s net assets exclusive of variable interests. The primary beneficiary of a variable interest entity is the party that absorbs a majority of the entity’s expected losses or receives a majority of its expected residual returns. An enterprise with a variable interest in a variable interest entity must consider variable interests of related parties and de facto agents as its own in determining whether it is the primary beneficiary.

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55 views1 page

Understanding Variable Interest Entities

Variable interest entity refers to an entity subject to consolidation according to certain provisions. Variable interests in a variable interest entity are contractual, ownership, or other pecuniary interests in an entity that change with changes in the fair value of the entity’s net assets exclusive of variable interests. The primary beneficiary of a variable interest entity is the party that absorbs a majority of the entity’s expected losses or receives a majority of its expected residual returns. An enterprise with a variable interest in a variable interest entity must consider variable interests of related parties and de facto agents as its own in determining whether it is the primary beneficiary.

Uploaded by

Alfan Azizi 'jibex'
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

Variable Interest Entity

Variable interest entity refers to an entity subject to consolidation according to the


provisions of this Interpretation. Variable interests in a variable interest entity are contractual,
ownership, or other pecuniary interests in an entity that change with changes in the fair value
of the entity’s net assets exclusive of variable interests. Equity interests with or without voting
rights are considered variable interests if the entity is a variable interest entity and to the extent
that the investment is at risk. the term entity to refer to any legal structure used to conduct
activities or to hold assets. Some examples of such structures are corporations, partnerships,
limited liability companies, grantor trusts, and other trusts.
An enterprise that consolidates a variable interest entity is the primary beneficiary of
the variable interest entity. The primary beneficiary of a variable interest entity is the party that
absorbs a majority of the entity’s expected losses, receives a majority of its expected residual
returns, or both, as a result of holding variable interests, which are the ownership, contractual,
or other pecuniary interests in an entity that change with changes in the fair value of the entity’s
net assets excluding variable [Link] enterprise with a variable interest in a variable
interest entity must consider variable interests of related parties and de facto agents as its own
in determining whether it is the primary beneficiary of the entity.
Disclosure
An enterprise that holds significant variable interests in a variable interest entity but is not the
primary beneficiary is required to disclose:
1. The nature, purpose, size, and activities of the variable interest entity,
2. Its exposure to loss as a result of the variable interest holder’s involvement with the entity,
3. The nature of its involvement with the entity and date when the involvement began.
The primary beneficiary of a variable interest entity is required to disclose
1. the nature, purpose, size, and activities of the variable interest entity
2. the carrying amount and classification of consolidated assets that are collateral for the
variable interest entity’s obligations,
3. any lack of recourse by creditors (or beneficial interest holders) of a consolidated variable
interest entity to the general credit of the primary beneficiary.

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