2.10 Controlling Financial Interest

ASC 810-10

Objectives — General

10-1 The purpose of consolidated financial statements is to present, primarily for the benefit of the owners and creditors of the parent, the results of operations and the financial position of a parent and all its subsidiaries as if the consolidated group were a single economic entity. There is a presumption that consolidated financial statements are more meaningful than separate financial statements and that they are usually necessary for a fair presentation when one of the entities in the consolidated group directly or indirectly has a controlling financial interest in the other entities.

A reporting entity that consolidates another legal entity holds a “controlling financial interest” in that legal entity. Such legal entities are not limited to VIEs. Rather, a parent that consolidates any legal entity is said to have a controlling financial interest in the consolidated legal entity.

Under the voting interest entity model, a reporting entity with ownership of a majority of the voting interests in a legal entity is generally considered to have a controlling financial interest in the legal entity. However, the VIE model was established for situations in which control may be demonstrated other than by possession of voting rights in a legal entity. Accordingly, the evaluation of whether a reporting entity has a controlling financial interest in a VIE focuses on the “power to direct the activities of a VIE that most significantly impact the VIE’s economic performance” and the “obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.”1

The reporting entity that has a controlling financial interest in a VIE is referred to as the primary beneficiary of the VIE and is sometimes the same party that holds a majority of the voting interests. See Deloitte’s Roadmap Consolidation — Identifying a Controlling Financial Interest for further discussion about the voting interest entity model, the VIE model, and how a reporting entity should assess whether it has a controlling financial interest in a VIE.

Footnotes

Quoted from ASC 810-10-25-38A.

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