What is an example of a variable interest entity?

Examples of variable interests include operating leases, service contracts, debt instruments and guarantees. For example, a public company may provide decision-making services to another entity.

Is Alibaba a variable interest entity?

Alibaba as an example

For example, Alibaba, the largest retailer and e-commerce company in China, uses a VIE structure allowing U.S. investors to purchase VIE shares in Alibaba on the New York Stock Exchange (NYSE).

How do you tell if a company is a variable interest entity?

4.1 Determining whether an entity is a VIE
  1. Lack the power to direct activities that most significantly impact the entity’s economic performance.
  2. Possess nonsubstantive voting rights.
  3. Lack the obligation to absorb the entity’s expected losses.
  4. Lack the right to receive the entity’s expected residual returns.

What business types typically describe variable interest entities?

A variable interest entity (VIE) may be any type of legal business structure. It can be, for instance, a trust, a partnership, a corporation, or joint venture. It is created such that even if an investor does not hold a majority of the voting rights, they are able to exercise a controlling interest in it.

What is Chinese variable interest entity?

ABSTRACT. Over the past two decades, variable interest entity (VIE) structures have been used widely for foreign investors to access Chinese industries that are closed or restricted to foreign investment.

What are Chinese variable interest entities?

Over the past two decades, Chinese issuers have widely used the variable interest entity (VIE) structure to raise overseas capital while, at the same time, ‘satisfying’ China’s regulation of foreign investment in industries that are closed or restricted to foreign capital.

Is JD a VIE?

On Friday, JD.Com Inc (JD:VIE) closed at 52.40, 39.18% above the 52 week low of 37.65 set on Mar 15, 2022.

Is Tencent a VIE?

As of last trade, Tencent Holdings Ltd (NNND:VIE) traded at 37.74, 11.13% above the 52 week low of 33.96 set on Mar 15, 2022.

What determines a VIE?

In order to identify whether an entity is a VIE, the FASB focused on two main features: insufficiency of equity at risk and lack of control by the apparent voting shareholders.

Who is the primary beneficiary of a VIE?

The primary beneficiary is the variable interest holder that has both (1) the power to direct activities that most significantly impact the economic performance of the VIE, and (2) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE.

What are variable interests?

Variable Interests: The investments or other interests that will absorb portions of a variable interest entity’s (VIE’s) expected losses or receive portions of the entity’s expected residual returns are called variable interests.

Can a public company be a VIE?

A variable interest entity (VIE) generally refers to an entity in which a public company has a controlling interest even though it doesn’t own majority shares. Therefore, the public company can direct the VIE’s significant activities and control the flow of profits/losses.

Is a wholly owned subsidiary a VIE?

ASC 810-10-15-9 clarifies that a wholly- or majority-owned subsidiary is subject to the VIE model and may be a VIE. If the subsidiary is a VIE, a reporting entity other than the subsidiary’s legal parent may be required to consolidate it under the VIE model.

Is a variable interest entity a subsidiary?

Variable Interest Entity means any Person that is not a Subsidiary under clause (a) of the definition of such term but the accounts of which are consolidated with those of the Borrower under GAAP as a result of its status as a variable interest entity.

Who consolidates a VIE?

In general, under FIN 46(R), an equity investor consolidates the VIE when that investor retains a majority interest in the VIE’s expected losses or a majority interest in the VIE’s residual returns.

Who is required to consolidate a variable interest entity?

Under U.S. GAAP, there are two primary consolidation models: (1) the voting interest entity model and (2) the variable interest entity (VIE) model. Both require the reporting entity to identify whether it has a “controlling financial interest” in a legal entity and must therefore consolidate the legal entity.

What is a VIE model?

The VIE model typically applies to entities that are formed for a predefined limited purpose, such as securitizations and asset-backed financing entities because these entities normally meet the definition of a VIE. However, the VIE model may also apply to operating companies and joint ventures.

Why would a company not want to consolidate?

The directors of a parent company may not wish to consolidate some subsidiaries due to: Poor performance of the subsidiary. Poor financial position of the subsidiary. Differing activities (nature) of the subsidiary from the rest of the group.