Under ASC 810, a Variable Interest Entity (VIE) must be consolidated by the Primary Beneficiary. Which of the following characteristics identifies the Primary Beneficiary?

Answer options:

Ownership of more than 50% of the voting shares.

The power to direct activities that most significantly impact economic performance AND the obligation to absorb losses/right to receive benefits.

Ownership of the majority of the debt instruments.

Being the largest customer of the entity.

How to approach this question

VIE Consolidation Rule: Power + Economics. You need the power to run the show AND skin in the game.

Full Answer

B.The power to direct activities that most significantly impact economic performance AND the obligation to absorb losses/right to receive benefits.✓ Correct

The Primary Beneficiary is the entity that has both: 1) The power to direct the activities of the VIE that most significantly impact the VIE's economic performance, and 2) The obligation to absorb losses or the right to receive benefits that could be significant to the VIE.

Common mistakes

Applying the voting interest model (>50% shares) to a VIE.

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