Variable interest entity definition
/What is a Variable Interest Entity?
A variable interest entity (VIE) is a legal entity in which an investor holds a controlling interest, despite not having a majority of its share ownership. This controlling interest is achieved through a contractual relationship, rather than the direct ownership of shares in the VIE. Variable interest entities are used as special purpose vehicles to finance certain investments without putting the parent entity at risk of loss. A VIE has the following characteristics:
The entity's equity is not sufficient to support its operations
Residual equity holders do not control the VIE
Residual equity holders are shielded from the gains and losses normally associated with ownership
Presentation of a Variable Interest Entity
If an investor is the primary beneficiary of a variable interest entity, the investor must consolidate its financial statements with those of the VIE. The primary beneficiary is the one that can direct the most significant economic activities of the VIE.