Consolidated vs consolidating
In 2004 La-Z-Boy Furniture Galleries determined that several of the independent dealers operating La-Z-Boy stores were variable interest entities under the terms of Interpretation no.
46(R) and included them in its consolidated financial statements.
Equity investors in the VIE lack any of three characteristics of controlling financial interest.
Investors with such an interest — Participate in decision-making processes by voting their shares.
(A lesser investment does not give the entity sufficient equity to operate alone.) The 10% rule is not a safe harbor—having more equity at risk should not lead CPAs to presume the VIE has sufficient equity at risk to cover any expected losses.
If the equity investors lack any of the three characteristics described above, the VIE’s primary beneficiary must consolidate the entity.
When provided by related parties, such support is considered provided by the primary reporting entity.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.46 in January 2003 and a revised version in December 2003 to help companies decide whether to consolidate VIEs into their financial statements.A VIE MUST BE CONSOLIDATED INTO THE FINANCIAL statements of the primary beneficiary company when it does not have enough equity at risk or its equity investors lack any of three characteristics of controlling financial interest.