FIN 46 generally applies to business enterprises and arrangements used by business enterprises and
applies to a larger population of entities than those commonly known as SPEs. VIEs covered by FIN 46
may include entities that are majority-owned subsidiaries. Accordingly, the parent or other parties
who have relationships with the subsidiary must determine whether that subsidiary is a VIE. If so,
the primary beneficiary, which might not be the majority owner, would consolidate the subsidiary.
The scope of FIN 46, however, excludes certain entities that might otherwise meet the definition of
a VIE. Most importantly, QSPEs as defined in Statement 140 and “grandfathered” QSPEs are excluded
from the scope. Accordingly, transferors to QSPEs should not consolidate those entities.
Additionally, other entities involved with QSPEs normally would not consolidate them either. Also
excluded are certain not-for-profit organizations, employee benefit plans, subsidiaries of
investment companies and separate accounts of life insurance entities, as well as virtual SPEs
(divisions, departments, branches, and pools of assets subject to liabilities that are otherwise
nonrecourse to the enterprise).
Continue Reading - Variable Interest Entities