Variable Interest Entities Flashcards
What is a corporation, partnership, trust, LLC, or other lega 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?
Variable Interest Entities
What are the 3 conditions to be met if consolidation required?
Variable interest, Variable Interest Entites, and Primary Beneficiary
What 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 absorbs the expected VIE losses or receives the expected VIE residual returns?
Primary Beneficiary
A company has a variable interest in a business entity when all of the following conditions are met?
Company and Business Entity have an arrangement, Business Entity is a legal entity, Business entity fails to qualify for exclusion, interest is more than insignificant, and company has a explicit or implicit variable interest in the entity
The business entity is a VIE if it has the following characteristics?
Insufficient level of equity investment a risk, inability to make decisions or direct activities, no obligation to absorb entity’s expected losses, no right to receive expected residual returns, and disproportional voting rights
An entity is automatically deemed to be a variable interest entity when all three of the following conditions are present?
Substantially all of the activities of the entity are conducted on behalf of an equity investor or substantially all of the activities are involving an equity investor, the voting rights of that equity investor are small in comparison with the focus of the entity on that investor, and the voting rights of one or more of the equity investors, including that equity investor, are out of line with the investor’s obligation to absorb expected losses, the investor’s right to receive expected residual returns, or both
