6.1 Introduction
ASC 810-10
25-57 A reporting entity with a variable interest in specified assets of a VIE shall treat a portion of the VIE as a separate VIE if the specified assets (and related credit enhancements, if any) are essentially the only source of payment for specified liabilities or specified other interests. (The portions of a VIE referred to in this paragraph are sometimes called silos.) That requirement does not apply unless the legal entity has been determined to be a VIE. If one reporting entity is required to consolidate a discrete portion of a VIE, other variable interest holders shall not consider that portion to be part of the larger VIE.
25-58 A specified asset (or group of assets) of a VIE and a related liability secured only by the specified asset or group shall not be treated as a separate VIE (as discussed in the preceding paragraph) if other parties have rights or obligations related to the specified asset or to residual cash flows from the specified asset. A separate VIE is deemed to exist for accounting purposes only if essentially all of the assets, liabilities, and equity of the deemed VIE are separate from the overall VIE and specifically identifiable. In other words, essentially none of the returns of the assets of the deemed VIE can be used by the remaining VIE, and essentially none of the liabilities of the deemed VIE are payable from the assets of the remaining VIE.
It is important for a reporting entity to
determine whether, in performing the VIE analysis under ASC
810-10, its variable
interest is in a legal entity itself or
in a silo of the legal entity (sometimes referred
to as a VIE within a VIE). We have not provided a
flowchart at the beginning of this chapter to
indicate where the identification of silos fits in
the consolidation analysis, nor does the FASB
specifically mention silos in its flowchart in ASC
810. The identification of silos is, in short, a
unit-of-account question. If silos exist (and the
host is a VIE), the variable interest holders
would effectively treat them as separate
structures that could be consolidated separately
from the broader legal entity. Throughout this
chapter, the term “host” refers to the remaining
legal entity after the removal of all of the
identified silos. In other words, if a silo (or
multiple silos) exists and the host is a VIE, the
units of account for potential consolidation would
be each respective silo and the host itself. The
assessment of whether a silo exists should
generally be made at the time of initial
involvement with a potential VIE and upon the
occurrence of reconsideration events described in
Chapter 9.
The silo concept appears only in the VIE subsections of ASC 810-10. The FASB established this concept in response to concerns that reporting entities could avoid consolidation by combining separate pools of assets or activities into a single legal entity while effectively segregating the right to govern the activities, the right to receive the benefits, and the obligation to absorb the losses of each separate pool of assets or activities, effectively creating a VIE within a VIE. Such scenarios will generally only result from either (1) specific regulatory constructs or (2) deliberate legal structuring (see Section 6.2.3). Accordingly, silos typically exist in very limited circumstances. If a silo exists within a VIE, a reporting entity with a variable interest in the silo should determine whether consolidating it separately from the legal entity as a whole is appropriate.
The flowchart below outlines the reporting entity’s analysis of whether a silo
should be considered for consolidation.