First things first: An entity must first determine whether the reporting entity and legal entity are in the scope of the consolidation guidance and the VIE model.
Identifying a Variable Interest
If a scope exception does not apply, the reporting entity next determines whether it has a variable interest in the legal entity.
Once a reporting entity determines that it has a variable interest in a legal entity within the scope of the VIE model, it next determines whether the legal entity is a VIE.
Identifying the Primary Beneficiary
If a legal entity is a VIE, the next step is to determine which reporting entity, if any, controls and consolidates the VIE, that is, to identify the primary beneficiary of the VIE.
Related Parties and De Facto Agents
The VIE model requires a reporting entity to identify related parties and de facto agents, because they may not be able to fully pursue their own separate interests apart from the reporting entity.
If a legal entity is within the scope of the consolidation guidance but outside the scope of the VIE model, the legal entity is a voting interest entity. The reporting entity uses only the guidance in the general subsections of ASC 810 to determine whether it controls and consolidates the voting interest entity.
It is important to determine whether control is obtained under the VIE model or the voting model, because whether a legal entity is a VIE can affect its initial and subsequent measurement.
ASC 810 includes general presentation and disclosure requirements that apply to both VIEs and voting interest entities.
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