Which of the following is not an indicator that requires a sponsoring firm to consolidate a variable interest entity (VIE) with its own financial statements?
A) The sponsoring firm has the obligation to absorb potentially significant losses of the VIE.
B) The sponsoring firm receives risks and rewards of the VIE in proportion to equity ownership.
C) The sponsoring firm has the right to receive potentially significant benefits of the VIE.
D) The sponsoring firm has power through voting rights to direct the entity's activities that significantly impact economic performance.
E) The sponsoring firm is a primary beneficiary of the VIE.

Question

Quizplus · Accepted Answer

According to the Financial Accounting Standards Board's interpretation of the Consolidation Standard for variable interest entities, a sponsoring firm must consolidate a VIE if it has power, regardless of whether it actually exercises that power, to direct the activities of the VIE that significantly impact its economic performance and the obligation to absorb potentially significant losses of the VIE. Additionally, the sponsoring firm must consolidate a VIE if it is the primary beneficiary of the VIE, which is defined as having both the power to direct the activities of the VIE that most significantly impact its economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Therefore, option B does not require the sponsoring firm to consolidate a VIE, as it only indicates that the sponsoring firm receives risks and rewards in proportion to its equity ownership, without indicating any power or obligations.

Which of the Following Is Not an Indicator That Requires