What is a variable interest entity example?

What is a variable interest entity example?

Examples of variable interests include operating leases, service contracts, debt instruments and guarantees. For example, a public company may provide decision-making services to another entity.

What makes a company a variable interest entity?

A variable interest entity (VIE) refers to a legal business structure in which an investor has a controlling interest despite not having a majority of voting rights. Characteristics include a structure where equity investors do not have sufficient resources to support the ongoing operating needs of the business.

How do you determine if an entity is a variable interest entity?


  1. The entity does not have enough equity to finance its activities without additional subordinated financial support (e.g., the entity is thinly capitalized)
  2. The equity holders, as a group, lack any one of the common characteristics of a controlling financial interest:

What is a variable interest entity vie quizlet?

A variable interest entity (VIE) is a business structure that is designed to accomplish a specific purpose. A VIE can take the form of a trust, partnership, joint venture, or corporation although typically it has neither independent management nor employees.

Who is required to consolidate a variable interest entity?

Under the voting interest model, consolidation is required when one reporting entity has a controlling financial interest in another by virtue of owning more than 50% of the outstanding voting shares, either directly or indirectly. The assessment of a controlling financial interest under the VIE model is more complex.

What are the variables of interest?

Variable of interest, in an experimental study, a changing quantity that is measured. One or more of these variables, referred to as the factors of the study, are controlled so that data may be obtained about how the factors influence another variable referred to as the response variable, or simply the response.

Do you consolidate a VIE?

Under ASC 810, Consolidation, a reporting entity—the entity issuing financial statements—is required to consolidate a separate legal entity when the reporting entity has a controlling financial interest in another separate legal entity.

What business types typically describe variable interest entities quizlet?

Equity investors’ returns are capped by contractual arrangements with variable interest holders. There is insufficient equity at risk to enable the entity to finance its activities without additional support. What business types typically describe variable interest entities? Trusts.

What is a variable interest?

What Is a Variable Interest Rate? A variable interest rate (sometimes called an “adjustable” or a “floating” rate) is an interest rate on a loan or security that fluctuates over time because it is based on an underlying benchmark interest rate or index that changes periodically.

Why do Chinese companies use vie?

Variable interest entities are used by businesses in sectors where China limits foreign ownership, including telecommunications and education, to let foreign investors buy in through shell companies based in jurisdictions such as the Cayman Islands.

What are the different types of variable interest entities?

A variable interest entity (VIE) may be any type of legal business structure. It can be, for instance, a trust, a partnership, a corporation, or joint venture Joint Venture (JV) A joint venture (JV) is a commercial enterprise in which two or more organizations combine their resources to gain a tactical and strategic edge in the market.

When do public companies have to disclose variable interest entities?

Under the Federal securities laws, public companies have to disclose their relationships to VIEs when they file their 10-K forms. Variable interest entities (VIEs) are often established as special purpose vehicles (SPVs) to passively hold financial assets or to actively conduct research and development.

When does a company have a majority interest in a vie?

If a company is the primary beneficiary of such an entity—namely has a majority interest in the VIE—then the holdings of that entity must be disclosed on the company’s consolidated balance sheet. But if a company is not the primary beneficiary, consolidation is not required.