unit 6 aa discussion.docx - Hello class and Professor topic 1 A variable interest entity is defined as an entity(investee in which the investor has

unit 6 aa discussion.docx - Hello class and Professor topic...

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Hello class and Professor, topic 1 A variable interest entity is defined as an entity (investee) in which the investor has obtained less than a majority-owned interest, according to the United States FASB. A variable interest entity (VIE) is subject to consolidation if certain conditions exist. In order to establish a primary beneficiary they need to have the ability to absorb a significant share of the VIE’s losses or receive a significant share of the VIE’s residual returns or both. The fact that the primary beneficiary may own no voting shares whatsoever becomes inconsequential because such shares do not effectively give the equity investors power to exercise control. There is also a point when the variable interest entity is subject to the consolidation process. First, the companies must indemnity a VIE that is not subject to control through voting ownership interest. Nonetheless subject to their control and therefore subject to consolidation.
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