The primary beneficiary is the reporting entity, if any, that receives the majority of expected returns or absorbs the majority of expected losses.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.The purpose of this article is to explain the substantive provisions of Interpretation no.

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.

In many cases involving private companies, these additional support arrangements exist between and among affiliated entities and indicate there is not sufficient equity at risk for the VIE to operate on a stand-alone basis.

Quantitatively, the general rule is that at least 10% of the fair value of the VIE’s assets must be provided as an equity investment.

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.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.AMONG ENRON’S PROBLEMS WAS ITS USE of variable interest entities, which allowed it to leave significant amounts of debt off its balance sheet.In response to concern about this practice, FASB issued Interpretation no.The equity at risk should be sufficient for the VIE to finance its activities without additional support.