Variable Interest Entity

Variable Interest Entity

A Variable Interest Entity (VIE) is a term used by the United States Financial Accounting Standards Board in FIN 46 to refer to an entity (the investee) in which the investor holds a controlling interest which is not based on the majority of voting rights. It is closely related to the concept Special Purpose Entity. The importance of identifying a VIE is that companies need to consolidate such entities if it is the primary beneficiary of the VIE.

Criteria

A VIE is an entity meeting one of the following three criteria as elaborated in paragraph 5 of FIN46:
#The equity-at-risk is not sufficient to support the entity's activities (e.g.: the entity is thinly capitalized, the group of equity holders possess no substantive voting rights, etc.);
#As a group, the equity-at-risk holders cannot control the entity; or
#The economics do not coincide with the voting interests (commonly known as the "anti-abuse rule").

External links

* http://www.vinodkothari.com/fin46vk.htm
* http://www.bloomberg.com/apps/news?pid=20601103&sid=aFTh5VXP9m0U&refer=news
* http://www.ft.com/cms/s/0/b7e7876a-e564-11dc-9334-0000779fd2ac.html


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