11.2 Disclosures for VIEs
ASC 810-10
50-2AA The principal objectives of this Subsection’s required disclosures are to provide financial statement users with an understanding of all of the following:
- The significant judgments and assumptions made by a reporting entity in determining whether it must do any of the following:
- Consolidate a variable interest entity (VIE)
- Disclose information about its involvement in a VIE.
- The nature of restrictions on a consolidated VIE’s assets and on the settlement of its liabilities reported by a reporting entity in its statement of financial position, including the carrying amounts of such assets and liabilities.
- The nature of, and changes in, the risks associated with a reporting entity’s involvement with the VIE.
- How a reporting entity’s involvement with the VIE affects the reporting entity’s financial position, financial performance, and cash flows.
50-2AB A reporting entity shall consider the overall objectives in the preceding paragraph in providing the disclosures required by this Subsection. To achieve those objectives, a reporting entity may need to supplement the disclosures otherwise required by this Subsection, depending on the facts and circumstances surrounding the VIE and a reporting entity’s interest in that VIE.
50-2AC The disclosures required by this Subsection may be provided in more than one note to the financial statements, as long as the objectives in paragraph 810-10-50-2AA are met. If the disclosures are provided in more than one note to the financial statements, the reporting entity shall provide a cross reference to the other notes to the financial statements that provide the disclosures prescribed in this Subsection for similar entities.
All reporting entities that have a variable interest in a VIE are subject to the disclosure requirements of ASC 810-10. Reporting entities should consider the overall objectives of ASC 810-10-50-2AA and, depending upon the circumstances, may need to supplement their disclosures to meet these objectives. Meeting these disclosure requirements can sometimes be challenging because a reporting entity might not be privy to all the information about a VIE, especially if the reporting entity is not the primary beneficiary of the VIE but has a variable interest in the VIE and is subject to some of the VIE’s disclosure requirements.
The specific VIE disclosure requirements are discussed in the following sections:
- Disclosure requirements for all variable interest holders, including the primary beneficiary — Section 11.2.1.
- Disclosure requirements for only the primary beneficiary — Section 11.2.2.
- Disclosure requirements for only variable interest holders other than the primary beneficiary — Section 11.2.3.
- Disclosure requirements related to certain VIE scope exceptions — Section 11.2.4.
- Other disclosure considerations — Section 11.2.5.
11.2.1 Disclosure Requirements for All Variable Interest Holders, Including the Primary Beneficiary
ASC 810-10
50-5A A reporting entity that is a primary beneficiary of a VIE or a reporting entity that holds a variable interest in a VIE but is not the entity’s primary beneficiary shall disclose all of the following:
- Its methodology for determining whether the reporting entity is the primary beneficiary of a VIE, including, but not limited to, significant judgments and assumptions made. One way to meet this disclosure requirement would be to provide information about the types of involvements a reporting entity considers significant, supplemented with information about how the significant involvements were considered in determining whether the reporting entity is the primary beneficiary.
- If facts and circumstances change such that the conclusion to consolidate a VIE has changed in the most recent financial statements (for example, the VIE was previously consolidated and is not currently consolidated), the primary factors that caused the change and the effect on the reporting entity’s financial statements.
- Whether the reporting entity has provided financial or other support (explicitly or implicitly) during the periods presented to the VIE that it was not previously contractually required to provide or whether the reporting entity intends to provide that support, including both of the following:
- The type and amount of support, including situations in which the reporting entity assisted the VIE in obtaining another type of support
- The primary reasons for providing the support.
- Qualitative and quantitative information about the reporting entity’s involvement (giving consideration to both explicit arrangements and implicit variable interests) with the VIE, including, but not limited to, the nature, purpose, size, and activities of the VIE, including how the VIE is financed. Paragraphs 810-10-25-49 through 25-54 provide guidance on how to determine whether a reporting entity has an implicit variable interest in a VIE.
50-5B A VIE may issue voting equity interests, and the entity that holds a majority voting interest also may be the primary beneficiary of the VIE. If so, and if the VIE meets the definition of a business and the VIE’s assets can be used for purposes other than the settlement of the VIE’s obligations, the disclosures in the preceding paragraph are not required.
All variable interest holders, including the primary beneficiary, must provide
the above disclosures unless the reporting entity is the primary beneficiary of
the VIE and the VIE has all of the following characteristics: (1) it meets the
definition of a business (see Section 3.4.4.2), (2) it issues voting equity interests and the
primary beneficiary holds a majority voting interest, and (3) its assets can be
used other than for the settlement of the VIE’s obligations.
11.2.1.1 Applicability of the Majority Voting Interest Criterion to Limited Partnerships
For limited partnerships (and similar entities), we believe that in the
assessment of the disclosure exemption criterion in ASC 810-10-50-5B, the
general partner’s interest should be considered a “majority voting interest”
if the general partner (1) holds an equity investment that is more than
inconsequential (e.g., 1 percent or more) and (2) has the power to direct
the activities of the VIE that most significantly affect the VIE’s economics
through its equity interest, which would generally be the case when there
are no substantive kick-out (or participating) rights held by limited
partners. Effectively, when these conditions are met, the general partner
holds 100 percent of the voting class of the limited partnership. If the
general partner meets these conditions, it would be exempt from providing
the disclosures in ASC 810-10-50-5A as long as all the other criteria in ASC
810-10-50-5B are met.
11.2.2 Disclosure Requirements for Only the Primary Beneficiary
ASC 810-10
50-3 The primary beneficiary of a VIE that is a business shall provide the disclosures required by other guidance. The primary beneficiary of a VIE that is not a business shall disclose the amount of gain or loss recognized on the initial consolidation of the VIE. In addition to disclosures required elsewhere in this Topic, the primary beneficiary of a VIE shall disclose all of the following:
a. Subparagraph superseded by Accounting Standards Update No. 2009-17.
b. Subparagraph superseded by Accounting Standards Update No. 2009-17.
bb. The carrying amounts and classification of the VIE’s assets and liabilities in the statement of financial position that are consolidated in accordance with the Variable Interest Entities Subsections, including qualitative information about the relationship(s) between those assets and liabilities. For example, if the VIE’s assets can be used only to settle obligations of the VIE, the reporting entity shall disclose qualitative information about the nature of the restrictions on those assets.
c. Lack of recourse if creditors (or beneficial interest holders) of a consolidated VIE have no recourse to the general credit of the primary beneficiary
d. Terms of arrangements, giving consideration to both explicit arrangements and implicit variable interests that could require the reporting entity to provide financial support (for example, liquidity arrangements and obligations to purchase assets) to the VIE, including events or circumstances that could expose the reporting entity to a loss.
A VIE may issue voting equity interests, and the entity that holds a majority voting interest also may be the primary beneficiary of the VIE. If so, and if the VIE meets the definition of a business and the VIE’s assets can be used for purposes other than the settlement of the VIE’s obligations, the disclosures in paragraph 810-10-50-3(bb) through (d) are not required.
A primary beneficiary must provide the above disclosures, in addition to those
discussed in Section
11.2.1, unless the VIE has all of the following characteristics:
(1) it meets the definition of a business, (2) it issues voting equity interests
and the primary beneficiary holds a majority voting interest (see Section 11.2.1.1 for the
applicability to limited partnerships), and (3) its assets can be used other
than for the settlement of the VIE’s obligations.
Upon initial consolidation, if the VIE meets the definition of a business, the
primary beneficiary also should disclose the information required by ASC 805 and
any other applicable GAAP. If the VIE does not meet the definition of a
business, the primary beneficiary should disclose the amount of gain or loss
recognized upon the initial consolidation of the VIE and any other applicable
GAAP. See Deloitte’s Roadmap Business
Combinations for further discussion of this topic.
11.2.3 Disclosure Requirements for Only Variable Interest Holders Other Than the Primary Beneficiary
ASC 810-10
50-4 In addition to disclosures required by other guidance, a reporting entity that holds a variable interest in a VIE, but is not the VIE’s primary beneficiary, shall disclose:
- The carrying amounts and classification of the assets and liabilities in the reporting entity’s statement of financial position that relate to the reporting entity’s variable interest in the VIE.
- The reporting entity’s maximum exposure to loss as a result of its involvement with the VIE, including how the maximum exposure is determined and the significant sources of the reporting entity’s exposure to the VIE. If the reporting entity’s maximum exposure to loss as a result of its involvement with the VIE cannot be quantified, that fact shall be disclosed.
- A tabular comparison of the carrying amounts of the assets and liabilities, as required by (a) above, and the reporting entity’s maximum exposure to loss, as required by (b) above. A reporting entity shall provide qualitative and quantitative information to allow financial statement users to understand the differences between the two amounts. That discussion shall include, but is not limited to, the terms of arrangements, giving consideration to both explicit arrangements and implicit variable interests, that could require the reporting entity to provide financial support (for example, liquidity arrangements and obligations to purchase assets) to the VIE, including events or circumstances that could expose the reporting entity to a loss.
- Information about any liquidity arrangements, guarantees, and/or other commitments by third parties that may affect the fair value or risk of the reporting entity’s variable interest in the VIE is encouraged.
- If applicable, significant factors considered and judgments made in determining that the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance is shared in accordance with the guidance in paragraph 810-10-25-38D.
In addition to the disclosures discussed in Section 11.2.1, a variable interest holder
that is not the primary beneficiary of a VIE must provide the information
described above.
11.2.3.1 Maximum Exposure to Loss
ASC 810-10-50-4 requires a reporting entity that has a variable interest in a VIE, but that is not the primary beneficiary of the VIE, to disclose its “maximum exposure to loss as a result of its involvement with the VIE.” A reporting entity’s maximum exposure to loss (both explicit arrangements and implicit variable interests should be considered) includes (1) the amount invested in, and advanced to, the VIE as of the reporting date plus (2) any legal or contractual obligation to provide financing in the future.
A reporting entity’s maximum exposure to loss should include unavoidable future advances of funds or other assets to the VIE, net of the fair value of any goods or services that are received in exchange (e.g., losses related to a firm commitment to purchase future goods from the VIE at above-market rates). This maximum potential loss must be disclosed regardless of the probability that such losses will actually be incurred.
11.2.4 Disclosure Requirements Related to Certain VIE Scope Exceptions
11.2.4.1 Disclosures About the Exhaustive-Efforts Scope Exception
ASC 810-10
50-6 A reporting entity that does not apply the guidance in the Variable Interest Entities Subsections to one or more VIEs or potential VIEs because of the condition described in paragraph 810-10-15-17(c) shall disclose all the following information:
- The number of legal entities to which the guidance in the Variable Interest Entities Subsections is not being applied and the reason why the information required to apply this guidance is not available
- The nature, purpose, size (if available), and activities of the legal entities and the nature of the reporting entity’s involvement with the legal entities
- The reporting entity’s maximum exposure to loss because of its involvement with the legal entities
- The amount of income, expense, purchases, sales, or other measure of activity between the reporting entity and the legal entities for all periods presented. However, if it is not practicable to present that information for prior periods that are presented in the first set of financial statements for which this requirement applies, the information for those prior periods is not required.
A reporting entity that is not required to apply the VIE guidance because it
qualifies for the exhaustive-efforts scope exception (see Section 3.4.3) must
provide the above disclosures.
11.2.4.2 Disclosures About Money Market Funds
As discussed in Sections
3.3.4 and 3.3.4.1, a reporting entity that has an interest in certain
money market funds should not be evaluated for consolidation under either
the voting interest entity model or
the VIE model. However, a reporting entity that qualifies for this scope
exception is required to disclose any explicit arrangements to provide
financial support to the legal entity as well as any instances of such
support provided for the periods presented in the performance statement. ASC
810-10-15-12(f)(2) provides the following examples (not all-inclusive) of
the types of support that reporting entities should consider:
i. Capital contributions (except pari passu investments)
ii. Standby letters of credit
iii. Guarantees of principal and interest on debt investments
held by the legal entity
iv. Agreements to purchase financial assets for amounts greater
than fair value (for instance, at amortized cost or par value
when the financial assets experience significant credit
deterioration)
v. Waivers of fees, including management fees.
11.2.4.3 Disclosure Requirements for Private-Company Alternative
ASC 810-10
50-2AD Paragraph superseded
by Accounting Standards Update No. 2018-17.
50-2AE Paragraph superseded
by Accounting Standards Update No. 2018-17.
50-2AF Paragraph superseded
by Accounting Standards Update No. 2018-17.
Accounting Alternative for Entities Under Common
Control
50-2AG A reporting entity
that neither consolidates nor applies the requirements
of the Variable Interest Entities Subsections to a legal
entity under common control because it meets the
criteria in paragraph 810-10-15-17AD shall disclose the
following:
- The nature and risks associated with a reporting entity’s involvement with the legal entity under common control.
- How a reporting entity’s involvement with the legal entity under common control affects the reporting entity’s financial position, financial performance, and cash flows.
- The carrying amounts and classification of the assets and liabilities in the reporting entity’s statement of financial position resulting from its involvement with the legal entity under common control.
- The reporting entity’s maximum exposure to loss resulting from its involvement with the legal entity under common control. If the reporting entity’s maximum exposure to loss resulting from its involvement with the legal entity under common control cannot be quantified, that fact shall be disclosed.
- If the reporting entity’s maximum exposure to loss (as required by (d)) exceeds the carrying amount of the assets and liabilities as described in (c), qualitative and quantitative information to allow users of financial statements to understand the excess exposure. That information shall include, but is not limited to, the terms of the arrangements, considering both explicit and implicit arrangements, that could require the reporting entity to provide financial support (for example, implicit guarantee to fund losses) to the legal entity under common control, including events or circumstances that could expose the reporting entity to a loss.
50-2AH In applying the
disclosure guidance in paragraph 810-10-50-2AG(d)
through (e), a reporting entity under common control
shall consider exposures through implicit guarantees.
Determining whether an implicit guarantee exists is
based on facts and circumstances. Those facts and
circumstances include, but are not limited to,
whether:
- The private company (reporting entity) has an economic incentive to act as a guarantor or to make funds available.
- The private company (reporting entity) has acted as a guarantor for or made funds available to the legal entity in the past.
50-2AI In disclosing
information about the legal entity under common control,
a private company (reporting entity) shall present these
disclosures in addition to the disclosures required by
other guidance (for example, in Topics 460 on
guarantees, Topic 850 on related party disclosures, and
Topic 842 on leases). Those disclosures could be
combined in a single note or by including
cross-references within the notes to financial
statements.
A reporting entity that is not required to apply the VIE
guidance because it qualifies for the private-company alternative must provide the disclosures
described above, as applicable. See Section 3.5 for more information about the
private-company alternative.
11.2.5 Other Disclosure Considerations
11.2.5.1 Aggregation of Disclosures
ASC 810-10
50-9 Disclosures about VIEs may be reported in the aggregate for similar entities if separate reporting would not provide more useful information to financial statement users. A reporting entity shall disclose how similar entities are aggregated and shall distinguish between:
- VIEs that are not consolidated because the reporting entity is not the primary beneficiary but has a variable interest
- VIEs that are consolidated.
In determining whether to aggregate VIEs, the reporting entity shall consider quantitative and qualitative information about the different risk and reward characteristics of each VIE and the significance of each VIE to the entity. The disclosures shall be presented in a manner that clearly explains to financial statement users the nature and extent of an entity’s involvement with VIEs.
50-10 A reporting entity shall determine, in light of the facts and circumstances, how much detail it shall provide to satisfy the requirements of the Variable Interest Entities Subsections. A reporting entity shall also determine how it aggregates information to display its overall involvements with VIEs with different risk characteristics. The reporting entity must strike a balance between obscuring important information as a result of too much aggregation and overburdening financial statements with excessive detail that may not assist financial statement users to understand the reporting entity’s financial position. For example, a reporting entity shall not obscure important information by including it with a large amount of insignificant detail. Similarly, a reporting entity shall not disclose information that is so aggregated that it obscures important differences between the types of involvement or associated risks.
A reporting entity should consider both quantitative and qualitative information about the different risks and rewards of each VIE, and the magnitude of those risks and rewards, in determining whether to aggregate disclosures about multiple VIEs. Under either an aggregated or separate presentation, the reporting entity should consider the objectives of ASC 810-10-50-2AA to ensure that disclosures are presented in a manner that clearly explains to financial statement users the nature and extent of the reporting entity’s involvement with the VIEs.
When considering whether to aggregate disclosures about multiple VIEs, a reporting entity should assess whether the disclosures are more informative on an aggregated or disaggregated basis from the perspective of a user that is trying to understand the amount and nature of the reporting entity’s involvement with the VIE. While disaggregated information may seem to be more useful in most cases, it may sometimes result in excessive and lengthy disclosures.
11.2.5.2 Interaction With ASC 860 Disclosures
If a reporting entity (1) securitizes assets under ASC 860 (regardless of whether the securitization achieved sale accounting or is accounted for as a financing or a failed sale) and (2) has a variable interest in, or is the primary beneficiary of, the securitization vehicle, the reporting entity should provide the disclosures required by both ASC 860-10-50 and ASC 810-10-50. This information may be disclosed in more than one note to the financial statements as long as the overall disclosure objectives are met.