Essay on Chapter 6 Hoyle 12ed

13931 Words Nov 20th, 2015 56 Pages
Chapter 6
Variable interest entities, Intra-entity Debt, Consolidated Cash flows, and Other Issues

Chapter Outline I. Variable interest entities (VIEs) A. VIEs typically take the form of a trust, partnership, joint venture, or corporation. In most cases a sponsoring firm creates these entities to engage in a limited and well-defined set of business activities. For example, a business may create a VIE to finance the acquisition of a large asset. The VIE purchases the asset using debt and equity financing, and then leases the asset back to the sponsoring firm. If their activities are strictly limited and the asset is pledged as collateral, VIEs are often viewed by lenders as less risky than their sponsoring firms. As a
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D. If a reporting entity has a controlling financial interest in a variable interest entity, it should include the assets, liabilities, and results of the activities of the variable interest entity its consolidated financial statements. Proposed Accounting Standards Update on Variable Interest Entities
In November 2011 (updated January 2013), the FASB issued a proposed change for evaluating whether an entity must consolidate a VIE. The proposed accounting standard update, entitled Principal versus Agent Analysis, would introduce a separate qualitative analysis to determine whether a reporting entity with the authority to make economic decisions for a VIE uses its power in a principal or agent capacity. If the decision making party is a principal (rather than an agent of another party) then it is the controlling party. Alternatively, if the party that exercises decision-making power acts in the capacity of an agent, under the proposed guidance that party would not consolidate the VIE. As this latest FASB proposal demonstrates, the manner in which control is assessed continues to evolve over time. II. Intra-entity debt transactions A. No special difficulty is created when one member of a business combination loans money to another. The resulting receivable/payable accounts as well as the interest income

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