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Accounting Research Tool
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Chapter 4 — Variable Interests

4.1 Introduction

4.1 Introduction

One of the first steps in assessing whether a reporting entity is required to consolidate another legal entity is to determine whether the reporting entity holds an explicit or implicit variable interest in the legal entity being evaluated for consolidation. This determination is important for several reasons, including the following:
  • If a reporting entity determines that it does not have a variable interest in the legal entity, no further analysis is required. That is, that reporting entity is not required to consolidate the legal entity or provide any of the VIE disclosures related to the legal entity.
  • The identification of the variable interests may affect whether the legal entity is a VIE (see Chapter 5).
  • The evaluation of whether the reporting entity has a variable interest in a legal entity may affect its assessment of whether it has an obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE in the primary-beneficiary analysis (see Chapter 7).
  • A reporting entity that has a variable interest in a VIE may be required to provide certain disclosures (see Section 11.2).