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Anonymous Manager

Variable Interest Entity – Voting Rights vs Risk & Reward

Asked on July 15, 2013

Variable Interest Entity

I understand we need to consolidate an entity we may have a “controlling interest” in. Voting rights seems straight forward… we own less than 50%.

But not sure what to make of the risk & reward guidelines. What would we base that on? Also, aside from the definition, maybe some examples and how that plays out in the accounting would help.

Answers

Katherine Simmonds Agent • November 7, 2012

I think the answer is very clear, unless the investment in line representing the entity on your financials can be classified as equity in a consolidated financial statement without regard to the nature of the form of the interest the answer is "no" you may not consolidate the investment into your equity line.

The examples at this link are very straight forward and seem very helpful.

Best.

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