Consolidated versus consolidating financial statements Online sex chat without paying

When a company holds a majority of variable interests in another entity, it is considered the primary beneficiary and must consolidate that entity into its financial statements.

consolidated versus consolidating financial statements-57

The practical result of the new rules is that many reporting entities are adding significant assets and liabilities to their balance sheets.

mong myriad accounting problems that led to the downfall of Enron was its use of variable interest entities (VIEs), allowing it to leave significant amounts of debt off its balance sheet.

Conversely, where equity investors have these characteristics and the other requirements in Interpretation no. A VIE’s primary beneficiary is the entity that will consolidate it in its financial statements.

In some cases, it is relatively easy to determine which entity is the primary beneficiary through a qualitative analysis of the entity’s ability to make decisions about the VIE and share in its profits or losses.

The equity at risk should be sufficient for the VIE to finance its activities without additional support.

A VIE’S PRIMARY BENEFICIARY TYPICALLY IS ABLE to make decisions about the entity and share in profits and losses.— 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.Use the qualitative approach first to make the consolidation vs.nonconsolidation decision; use the quantitative approach if qualitative methods don’t result in a definitive conclusion.It focuses on controlling financial interests achieved by means other than voting.

Tags: , ,