Rules consolidating financials

When a company holds a majority of variable interests in another entity, it is considered the primary beneficiary and must consolidate that entity into its financial statements.

Interpretation 46(R) in Action In the notes to its 2004 financial statements, Coors said it had consolidated three joint ventures in 2004 as a result of the guidance in FASB Interpretation no. In the notes to its 2004 annual report, First Bank NW Corp. 46(R) did not have a material effect on its financial position or on the consolidated results of its operations.

It focuses on controlling financial interests achieved by means other than voting.

Where there is no voting interest, a company’s exposure to the assets’ risks and rewards represent the best evidence of control.

Investors with such an interest — Participate in decision-making processes by voting their shares.

The equity at risk should be sufficient for the VIE to finance its activities without additional support.

A VIE’S PRIMARY BENEFICIARY TYPICALLY IS ABLE to make decisions about the entity and share in profits and losses.

Conversely, where equity investors have these characteristics and the other requirements in Interpretation no. A VIE’s primary beneficiary is the entity that will consolidate it in its financial statements.

In some cases, it is relatively easy to determine which entity is the primary beneficiary through a qualitative analysis of the entity’s ability to make decisions about the VIE and share in its profits or losses.

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