Consolidating equity investment consolidating equity investment
Examples of such support include equity investments, loans, guarantees and commitments to fund operations.
When provided by related parties, such support is considered provided by the primary reporting entity.
The practical result of the new rules is that many reporting entities are adding significant assets and liabilities to their balance sheets.
CPAs SHOULD RECONSIDER A DECISION ABOUT WHETHER an entity is a VIE if its situation changes so its equity investment at risk is no longer adequate, some or all of the equity investment is returned to investors or the entity undertakes additional activities, acquires additional assets or receives an additional equity investment that is at risk. 46(R) is causing reporting entities to make new decisions about whether affiliated entities need to be consolidated into their financial statements.
Where neither approach provides an answer, use a combination of the two.
Qualitatively, a VIE must be able to demonstrate it can get nonrecourse financing from an unrelated party without additional subordinated financial support from other entities or individuals, including equity investors.
In response to widespread concerns about this business practice, FASB issued Interpretation no.
46, to address consolidation requirements for businesses that are affiliated with VIEs. 46(R) addresses the consolidation of business enterprises where the usual consolidation condition—ownership of a majority voting interest—does not apply.
Use the qualitative approach first to make the consolidation vs.