In the post Enron world, considerable ongoing attention has been given to the consolidation of variable interest entities (VIE), which are generally thinly capitalized. An amendment to FIN46(R) being issued by the FASB in June 2009 will require companies to perform periodic qualitative analysis on VIE's to determine if consolidation is necessary.
Focus is given on the amount of control a company exercises over the significant activities of the entity. This includes the right to receive benefits and the obligation to absorb losses as well as changes in risk exposure. After issuance of this new amendment, it is no long sufficient to base consolidation decisions solely quantitative analysis. A company should plan on disclosing significant judgments and assumptions used in this analysis. Effective date likely to be the beginning of 2010.
Focus is given on the amount of control a company exercises over the significant activities of the entity. This includes the right to receive benefits and the obligation to absorb losses as well as changes in risk exposure. After issuance of this new amendment, it is no long sufficient to base consolidation decisions solely quantitative analysis. A company should plan on disclosing significant judgments and assumptions used in this analysis. Effective date likely to be the beginning of 2010.
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