VIE

Question 1

Variable interest entity (characteristics)

Answer 1

• Power to direct the activities of the VIE
• Right to receive expected residual returns
• Obligation to absorb expected VIE losses.

Question 2

Examples of variable interests

Answer 2

Explicit (legally enforceable) investments at risk

Explicit guarantees of debt, the values of assets, or residual values of leased assets

Implicit guarantees of debt, the value of assets, or residual values of leases assets

Implicit guarantees with related party involvement

Most liabilities, excluding short-term trade (account) payables

Most forward contracts to sell assets owened by the entity

Options to acquire leased assets at the end of the lease terms at specified prices

Question 3

What would be considered a insufficient level of equity at risk?

Answer 3

The entity’s equity investment at risk is less than the equity investment at risk of similar non-VIE entities.

Question 4

IFRS-A sponsoring company controls and must consolidate an SPE when the company?

Answer 4

• Is benefited by the SPE’s activities.
• Has decision making powers that allow it to bent from the SPE
• Absorbs the risks and rewards of the SPE.
• Has a residual interest in the SPE.