FARE 10 VIE

Question 1

Variable Interest Entities

Answer 1

A corporation, partnership, trust, LLC, or other legal structure used for business purposes that either does not have equity investors with voting rights or lacks the sufficient financial resources to support its activities.

Question 2

Primary beneficiary

Answer 2

the entity that is required to consolidate the VIE. The primary beneficiary is the entity that has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and:

1. Absorbs the expected VIE losses
2. Receives the expected VIE residual returns

Question 3

Consolidation is required even if company doesn’t own stock if these conditions are met:

Answer 3

1. Variable interest - we have a financial stake in another company
2. Variable Interest Entities - that company’s entity is strange
3. Primary beneficiary - we have power over them and we get profits and losses

Question 4

1. Variable interest - we have a financial stake in another company

Answer 4

1. Company and business entity have an arrangement
2. Business entity is a legal entity
3. Business entity fails to qualify for exclusion
4. Interest is more than significant
5. Company has an explicit or implicit variable interest in the entity

Question 5

2. Variable Interest Entities - that company’s entity is strange

Answer 5

1. Insufficient level of equity investment at risk
2. Inability to make decisions or direct activities
3. No obligation to absorb entity’s expected losses
4. No right to receive profits
5. Disproportional voting rights

Question 6

3. Primary beneficiary - we have power over them and we get profits and losses

Answer 6

The company is the primary beneficiary if it has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and the company:

1. Absorbs the expected VIE losses
2. Receives VIE profits