Rules consolidating financials
The primary beneficiary is the reporting entity, if any, that receives the majority of expected returns or absorbs the majority of expected losses.
CPAs SHOULD RECONSIDER A DECISION ABOUT WHETHER an entity is a VIE if its situation changes so its equity investment at risk is no longer adequate, some or all of the equity investment is returned to investors or the entity undertakes additional activities, acquires additional assets or receives an additional equity investment that is at risk. 46(R) is causing reporting entities to make new decisions about whether affiliated entities need to be consolidated into their financial statements.
Interpretation 46(R) in Action In the notes to its 2004 financial statements, Coors said it had consolidated three joint ventures in 2004 as a result of the guidance in FASB Interpretation no. In the notes to its 2004 annual report, First Bank NW Corp. 46(R) did not have a material effect on its financial position or on the consolidated results of its operations.— Expect to share in returns generated by the entity. To avoid consolidation the total equity investment at risk should be sufficient for the VIE to finance its activities without additional support.CPAs can help reporting entities evaluate the sufficiency of equity at risk using qualitative or quantitative methods.46 in January 2003 and a revised version in December 2003 to help companies decide whether to consolidate VIEs into their financial statements.A VIE MUST BE CONSOLIDATED INTO THE FINANCIAL statements of the primary beneficiary company when it does not have enough equity at risk or its equity investors lack any of three characteristics of controlling financial interest.
Use the qualitative approach first to make the consolidation vs.