# ASC 810-10-55: Consolidation — Overall — 55 Implementation Guidance and Illustrations Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/810/10/#55-implementation-guidance-and-illustrations) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:f76150c9ecf528707a6e44519f9b11d7af85b5fcf5380876feee20df4feea9a1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 810-10-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/810/10/#55-implementation-guidance-and-illustrations) SEC content: no #### Implementation Guidance ##### [810-10-55-1](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:ea512bd5ccf8a69856fb8f691122afd025c376bea1bea971957838a6124a27a8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Examples of how to assess individual noncontrolling rights facilitate the understanding of how to assess whether the rights of the noncontrolling shareholder or limited partner should be considered protective or participating and, if participating, whether the rights are substantive. An assessment is relevant for determining whether noncontrolling rights overcome the presumption of control by the majority shareholder or limited partner with a majority of [kick-out rights](https://asc.understandingaccounting.org/glossary/k/#kick-out-rights-voting-interest-entity-definition "The rights underlying the limited partner's or partners' ability to dissolve (liquidate) the limited partnership or otherwise remove the general partners without cause.") through voting interests in an entity under the General Subsections of this Subtopic. Although the following examples illustrate the assessment of [participating rights](https://asc.understandingaccounting.org/glossary/p/#participating-rights-voting-interest-entity-definition "Participating rights allow the limited partners or noncontrolling shareholders to block or participate in certain significant financial and operating decisions of the limited partnership or corporation that are made in the ordinary course of business. Participating rights do not require the holders of such rights to have the ability to initiate actions.") or [protective rights](https://asc.understandingaccounting.org/glossary/p/#protective-rights-voting-interest-entity-definition "Rights that are only protective in nature and that do not allow the limited partners or noncontrolling shareholders to participate in significant financial and operating decisions of the limited partnership or corporation that are made in the ordinary course of business."), the evaluation should consider all of the factors identified in paragraph [810-10-25-13](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-13) to determine whether the noncontrolling rights, individually or in the aggregate, provide for the holders of those rights to effectively participate in certain significant financial and operating decisions that are made in the [ordinary course of business](https://asc.understandingaccounting.org/glossary/o/#ordinary-course-of-business "Decisions about matters of a type consistent with those normally expected to be addressed in directing and carrying out current business activities, regardless of whether the events or transactions that would necessitate such decisions are expected to occur in the near term. However, it must be at least reasonably possible that those events or transactions that would necessitate such decisions will occur. The ordinary course of business does not include self-dealing transactions."): 1. a The rights of the noncontrolling shareholder or limited partner relating to the approval of acquisitions and dispositions of assets that are expected to be undertaken in the ordinary course of business may be substantive participating rights. Rights related only to acquisitions that are not expected to be undertaken in the ordinary course of the investee's existing business usually are protective and would not overcome the presumption of consolidation by the investor with a majority voting interest or limited partner with a majority of kick-out rights through voting interests in its investee. Whether a right to approve the acquisition or disposition of assets is in the ordinary course of business should be based on an evaluation of the relevant facts and circumstances. In addition, if approval by the shareholder or limited partner is necessary to incur additional indebtedness to finance an acquisition that is not in the investee's ordinary course of business, then the approval by the noncontrolling shareholder or limited partner would be considered a protective right. 2. b Existing facts and circumstances should be considered in assessing whether the rights of the noncontrolling shareholder or limited partner relating to an investee's incurring additional indebtedness are protective or participating rights. For example, if it is reasonably possible or probable that the investee will need to incur the level of borrowings that requires noncontrolling shareholder or limited partner approval in its ordinary course of business, the rights of the noncontrolling shareholder or limited partner would be viewed as substantive participating rights. 3. c The rights of the noncontrolling shareholder or limited partner relating to dividends or other distributions may be protective or participating and should be assessed in light of the available facts and circumstances. For example, rights to block customary or expected dividends or other distributions may be substantive participating rights, while rights to block extraordinary distributions would be protective rights. 4. d The rights of the noncontrolling shareholder or limited partner relating to an investee's specific action (for example, to lease property) in an existing business may be protective or participating and should be assessed in light of the available facts and circumstances. For example, if the investee had the ability to purchase, rather than lease, the property without requiring approval of the noncontrolling shareholder or limited partner, then the rights of the noncontrolling shareholder or limited partner to block the investee from entering into a lease would not be substantive. 5. e The rights of the noncontrolling shareholder or limited partner relating to an investee's negotiation of collective bargaining agreements with unions may be protective or participating and should be assessed in light of the available facts and circumstances. For example, if an investee does not have a collective bargaining agreement with a union or if the union does not represent a substantial portion of the investee's work force, then the rights of the noncontrolling shareholder or limited partner to approve or veto a new or broader collective bargaining agreement are not substantive. 6. f Provisions that govern what will occur if the noncontrolling shareholder or limited partner blocks the action of an [owner](https://asc.understandingaccounting.org/glossary/o/#owners "Used broadly to include holders of ownership interests (equity interests) of investor-owned entities, mutual entities, or not-for-profit entities. Owners include shareholders, partners, proprietors, or members or participants of mutual entities. Owners also include owner and member interests in the net assets of not-for-profit entities.") of a majority voting interest or general partner need to be considered to determine whether the right of the noncontrolling shareholder or limited partner to block the action has substance. For example, if the shareholder or partnership agreement provides that if the noncontrolling shareholder or limited partner blocks the approval of an operating budget, then the budget simply defaults to last year's budget adjusted for inflation, and if the investee is a mature business for which year-to-year operating budgets would not be expected to vary significantly, then the rights of the noncontrolling shareholder or limited partner to block the approval of the operating budget do not allow the noncontrolling shareholder or limited partner to effectively participate and are not substantive. 7. g Noncontrolling rights relating to the initiation or resolution of a lawsuit may be considered protective or participating depending on the available facts and circumstances. For example, if lawsuits are a part of the entity's ordinary course of business, as is the case for some patent-holding companies and other entities, then the noncontrolling rights may be considered substantive participating rights. 8. h A noncontrolling shareholder or limited partner has the right to veto the annual operating budget for the first X years of the relationship. Based on the facts and circumstances, during the first X years of the relationship this right may be a substantive participating right. However, following Year X there is a significant change in the exercisability of the noncontrolling right (for example, the veto right terminates). As of the beginning of the period following Year X, that right would no longer be a substantive participating right and would not overcome the presumption of consolidation by the investor with a majority voting interest or limited partner with a majority of kick-out rights through voting interests in its investee. ##### [810-10-55-1A](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-1A) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:397fd2b2ce90bcc27680d861ceb5a1679015764c3d22492e27a85ecec8db17c3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic provides guidance for deconsolidation of a [subsidiary](https://asc.understandingaccounting.org/glossary/s/#subsidiary "An entity, including an unincorporated entity such as a partnership or trust, in which another entity, known as its parent, holds a controlling financial interest. (Also, a variable interest entity that is consolidated by a primary beneficiary.)"). If an asset one entity transfers to a second entity in exchange for a [noncontrolling interest](https://asc.understandingaccounting.org/glossary/n/#noncontrolling-interest "The portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. A noncontrolling interest is sometimes called a minority interest.") in that second entity is a subsidiary, the gain or loss of a controlling financial interest in that subsidiary is accounted for in accordance with this Subtopic. ##### [810-10-55-1B](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-1B) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:7e4d5b6a2d6c40af94b762c57eadf6a1e352426b9b61468d209fa44b061deaa2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To justify the preparation of consolidated financial statements, the controlling financial interest shall rest directly or indirectly in one of the entities included in the consolidation. There are circumstances, however, in which combined financial statements (as distinguished from consolidated financial statements) of commonly controlled entities are likely to be more meaningful than their separate financial statements. For example, combined financial statements would be useful if one individual owns a controlling financial interest in several entities that are related in their operations. Combined financial statements might also be used to present the financial position and results of operations of entities under common management. ##### [810-10-55-2](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:ef0c4623240fa9418b568f1b6b1a42daf2252d0f33d37a0c4770ba6abca507bd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. These paragraphs expand on the guidance in paragraph [810-10-25-16](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-16). A last-in, first-out (LIFO) liquidation (also called a decrement) occurs when the number of units (or total base year cost if dollar value LIFO is used) in a LIFO pool at year end is less than that at the beginning of the year, causing prior years' costs, rather than current year's costs, to be charged to current year's income. For example, in periods of rising prices, prior years' costs are less than current year's costs and, in such periods, charging prior years' costs to current year's income results in reporting current year's net income higher than it would be reported without a liquidation. ##### [810-10-55-3](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:29e8ad48ddb5ed5b9ac1d5199e95b71388281c43f7498df7fd6029955af3ee9d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Accounting for a LIFO liquidation is more complex with intra-entity transfers of inventories. Paragraph [810-10-10-1](https://asc.understandingaccounting.org/asc/810/10/#810-10-10-1) states that the purpose of [consolidated financial statements](https://asc.understandingaccounting.org/glossary/c/#consolidated-financial-statements "The financial statements of a consolidated group of entities that include a parent and all its subsidiaries presented as those of a single economic entity.") is to present the results of operations and the financial position of the [parent](https://asc.understandingaccounting.org/glossary/p/#parent "An entity that has a controlling financial interest in one or more subsidiaries. (Also, an entity that is the primary beneficiary of a variable interest entity.)") and its subsidiaries as if the [consolidated group](https://asc.understandingaccounting.org/glossary/c/#consolidated-group "A parent and all its subsidiaries.") were a single economic entity. Under that guidance intra-entity profit on assets remaining within the group shall be eliminated. Results of operations and financial position, therefore, shall not be affected solely because of inventory transfers within a reporting entity. Inventory transferred between or from LIFO pools may cause LIFO inventory liquidations that could affect the amount of intra-entity profit to be eliminated. ##### [810-10-55-4](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:bddfd96a00a5dd35edb36a7df1fe5d6750036ee9215f5def6c52939e9c932b1d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Many different approaches are used by entities in eliminating such profit. Each reporting entity shall adopt an approach that, if consistently applied, defers reporting intra-entity profits from transfers within a reporting entity until such profits are realized by the reporting entity through dispositions outside the consolidated group. The approach shall be suited to the entity's individual circumstances. ##### [810-10-55-4A](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-4A) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:c1738da21bbf2a2b0fdba9b8261979828e4258c240d4f0d046e01c4e17b1f4d2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. All of the following are circumstances that result in deconsolidation of a subsidiary under paragraph [810-10-40-4](https://asc.understandingaccounting.org/asc/810/10/#810-10-40-4): 1. a A parent sells all or part of its ownership interest in its subsidiary and, as a result, the parent no longer has a controlling financial interest in the subsidiary. 2. b The expiration of a contractual agreement that gave control of the subsidiary to the parent. 3. c The subsidiary issues shares, which reduces the parent's ownership interest in the subsidiary so that the parent no longer has a controlling financial interest in the subsidiary. 4. d The subsidiary becomes subject to the control of a government, court, administrator, or regulator. ##### [810-10-55-4B](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-4B) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:f0ebe362a20c6cbb4d4ecaa505341df7599d9557b34a5ead65beb26562d3cacb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Cases illustrate the application of the guidance in paragraph [810-10-45-23](https://asc.understandingaccounting.org/asc/810/10/#810-10-45-23) on accounting for changes in a parent's ownership interest in a subsidiary: 1. a Change results in recognition of noncontrolling interest (Case A) 2. b Change results in increase in noncontrolling interest (Case B) 3. c Change if entity has accumulated other comprehensive income (Case C). ##### [810-10-55-4C](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-4C) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:a15562d44301a7af1b119bb5db645fb79dab409248df4375718e2aa9eb242b51 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Subsidiary A has 10,000 shares of common stock outstanding, all of which are owned by its parent, Entity ABC. The carrying amount of Subsidiary A's equity is $200,000. Entity ABC sells 2,000 of its shares in Subsidiary A to an unrelated entity for $50,000 in cash, reducing its ownership interest from 100 percent to 80 percent. That transaction is accounted for by recognizing a noncontrolling interest in the amount of $40,000 ($200,000 × 20 percent). The $10,000 excess of the cash received ($50,000) over the adjustment to the carrying amount of the noncontrolling interest ($40,000) is recognized as an increase in additional paid-in capital attributable to Entity ABC. If the parent is a [not-for-profit entity](https://asc.understandingaccounting.org/glossary/n/#not-for-profit-entity "An entity that possesses the following characteristics, in varying degrees, that distinguish it from a business entity: Contributions of significant amounts of resources from resource providers who do not expect commensurate or proportionate pecuniary return Operating purposes other than to provide goods or services at a profit Absence of ownership interests like those of business entities. Entities that clearly fall outside this definition include the following: All investor-owned entities Entities that provide dividends, lower costs, or other economic benefits directly and proportionately to their owners, members, or participants, such as mutual insurance entities, credit unions, farm and rural electric cooperatives, and employee benefit plans.") (NFP), the $10,000 increase in additional paid-in capital in this Example is recognized instead as an increase in net assets, generally of the without donor restrictions class. Example 1 (see paragraphs [958-810-55-17 through 55-25](https://asc.understandingaccounting.org/asc/810/958/#810-958-55-17) ) provides additional guidance for NFPs. ##### [810-10-55-4D](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-4D) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:5354a28a40cd408dab19b601ff88358fd6f4e8fff1d514fae1844ba1f95d8c28 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Subsidiary A has 10,000 shares of common stock outstanding. Of those shares, 9,000 are owned by its parent, Entity ABC, and 1,000 are owned by other shareholders (a noncontrolling interest in Subsidiary A). The carrying amount of Subsidiary A's equity is $300,000. Of that amount, $270,000 is attributable to Entity ABC, and $30,000 is a noncontrolling interest in Subsidiary A. Subsidiary A issues 2,000 previously unissued shares to a third party for $120,000 in cash, reducing Entity ABC's ownership interest in Subsidiary A from 90 percent to 75 percent (9,000 shares owned by Entity ABC ÷ 12,000 issued shares). ##### [810-10-55-4E](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-4E) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:ce9daf5718c0fc6daa35b0dcafbc5e6e5db8f1f1ccb3fb0d5556dfc566831d7b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Even though the percentage of Entity ABC's ownership interest in Subsidiary A is reduced when Subsidiary A issues shares to the third party, Entity ABC's investment in Subsidiary A increases to $315,000, calculated as 75 percent of Subsidiary A's equity of $420,000 ($300,000 + $120,000). Therefore, Entity ABC recognizes a $45,000 increase in its investment in Subsidiary A ($315,000 - $270,000) and a corresponding increase in its additional paid-in capital (that is, the additional paid-in capital attributable to Entity ABC). In addition, the noncontrolling interest is increased to $105,000, calculated as 25 percent of $420,000. If the parent is an NFP, the $45,000 increase in additional paid-in capital in this example is recognized instead as an increase in net assets, generally of the without donor restrictions class. Example 1 (see paragraphs [958-810-55-17 through 55-25](https://asc.understandingaccounting.org/asc/810/958/#810-958-55-17) ) provides additional guidance for NFPs. ##### [810-10-55-4F](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-4F) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:8759d5671b8ba62f37a71a5db73e517b5fa0f6d294392cb08e019367f9e99731 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Subsidiary A has 10,000 shares of common stock outstanding. Of those shares, 8,000 are owned by its parent, Entity ABC, and 2,000 are owned by other shareholders (a noncontrolling interest in Subsidiary A). The carrying amount of the noncontrolling interest is $48,000, which includes $4,000 of accumulated other comprehensive income. Entity ABC pays $30,000 in cash to purchase 1,000 shares held by the noncontrolling shareholders (50 percent of the noncontrolling interest), increasing its ownership interest from 80 percent to 90 percent. That transaction is recognized by reducing the carrying amount of the noncontrolling interest by $24,000 ($48,000 × 50 percent). The $6,000 excess of the cash paid ($30,000) over the adjustment to the carrying amount of the noncontrolling interest ($24,000) is recognized as a decrease in additional paid-in capital attributable to Entity ABC. In addition, Entity ABC's share of accumulated other comprehensive income is increased by $2,000 ($4,000 × 50 percent) through a corresponding decrease in additional paid-in capital attributable to Entity ABC. ##### [810-10-55-4G](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-4G) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:e3bbc28e2bb1bd73befa25c3ca15e3c42289a747a6b5b1ea5556a5cccfa67acc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of this Subtopic's presentation and disclosure guidance by a parent with one or more less-than-wholly-owned subsidiaries. ##### [810-10-55-4H](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-4H) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:c735e932904443473124c5a1f8465f43a9da4da012424ec9c34c9b7063057901 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example involves all of the following assumptions: 1. a Entity ABC has one subsidiary, Subsidiary A. 2. b The tax rate for all years is 40 percent. 3. c Entity ABC has 200,000 shares of common stock outstanding and pays dividends of $10,000 each year on those common shares. Entity ABC has no potentially dilutive shares. 4. d Subsidiary A has 10,000 shares of common stock outstanding and does not pay dividends. 5. e Entity ABC owns all 10,000 shares in Subsidiary A for the entire year 20X1. 6. f On June 30, 20X1, Subsidiary A purchases a portfolio of securities for $100,000 and classifies those securities as available for sale. 7. g On December 31, 20X1, the carrying amount of the available-for-sale securities is $105,000. 8. h For the year ended December 31, 20X1, the amount of Subsidiary A's net income included in the consolidated financial statements is $24,000. 9. i On January 1, 20X2, Entity ABC sells 2,000 of its shares in Subsidiary A to an unrelated entity for $50,000 in cash, reducing its ownership interest from 100 percent to 80 percent. 10. j Immediately before the January 1, 20X2 sale, Subsidiary A's equity was as follows: - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-CFA42057-FD80-4A3A-B84B-06FEF27C6077-low.gif) Subsidiary A Common stock " $25,000 " Paid-in capital " 50,000 " Retained earnings " 125,000 " Accumulated other comprehensive income " 5,000 " Total equity " $205,000 " 11. k The January 1, 20X2 sale of Subsidiary A's shares by Entity ABC is accounted for as an equity transaction in the consolidated financial statements, as follows: 1. 1 A noncontrolling interest is recognized in the amount of $41,000 ($205,000 × 20 percent). 2. 2 Additional paid-in capital attributable to Entity ABC is increased by $9,000, calculated as the difference between the cash received ($50,000) and the carrying amount of the noncontrolling interest ($41,000). 3. 3 Additional paid-in capital attributable to Entity ABC is also increased by $1,000, which represents the carrying amount of Subsidiary A's accumulated other comprehensive income related to the ownership interest sold to the noncontrolling interest ($5,000 × 20 percent = $1,000). Accumulated other comprehensive income attributable to Entity ABC is decreased by a corresponding amount. 4. 4 The journal entry to record the sale of Subsidiary A's shares to the noncontrolling shareholders is as follows: - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-AFBFF6EB-3C11-4A4C-9360-71911B055150-low.gif) Cash "50,000" Accumulated other comprehensive income (Entity ABC) "1,000" Noncontrolling interest "41,000" Additional paid-in capital (Entity ABC) "10,000" 12. l For the year ended December 31, 20X2, the amount of Subsidiary A's net income included in the consolidated financial statements is $20,000. 13. m On January 1, 20X3, Entity ABC purchases 1,000 shares in Subsidiary A from the noncontrolling shareholders (50 percent of the noncontrolling interest) for $30,000 for cash, increasing its ownership interest from 80 percent to 90 percent. 14. n Immediately before the January 1, 20X3 purchase, the carrying amount of the noncontrolling interest in Subsidiary A was $48,000, which included $4,000 in accumulated other comprehensive income. 15. o The January 1, 20X3 purchase of shares from the noncontrolling shareholders is accounted for as an equity transaction in the consolidated financial statements, as follows: 1. 1 The noncontrolling interest balance is reduced by $24,000 ($48,000 × 50 percent interest acquired by Entity ABC). 2. 2 Additional paid-in capital of Entity ABC is decreased by $6,000, calculated as the difference between the cash paid ($30,000) and the adjustment to the carrying amount of the noncontrolling interest ($24,000). 3. 3 Additional paid-in capital of Entity ABC is also decreased by $2,000, which represents the carrying amount of Subsidiary A's accumulated other comprehensive income related to the ownership interest purchased from the noncontrolling shareholders ($4,000 × 50 percent = $2,000). 4. 4 Accumulated comprehensive income attributable to Entity ABC is increased by a corresponding amount ($2,000). 5. 5 The journal entry to record that purchase of Subsidiary A's shares from the noncontrolling shareholders is as follows: - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-BD409282-6189-4183-A0D0-988EB649B5AF-low.gif) Noncontrolling interest "24,000" Additional paid-in capital (Entity ABC) "8,000" Accumulated other comprehensive income (Entity ABC) "2,000" Cash "30,000" 16. p For the year ended December 31, 20X3, the amount of Subsidiary A's net income included in the consolidated financial statements is $15,000. ##### [810-10-55-4I](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-4I) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:c19440620f29a2e05487ce992961a81ea3528fd0ba004dcea08a7414fd5a9cbb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This consolidated statement of financial position illustrates application of the requirement in paragraph [810-10-45-16](https://asc.understandingaccounting.org/asc/810/10/#810-10-45-16) that Entity ABC present the noncontrolling interest in the consolidated statement of financial position within equity, but separately from the parent's equity. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-73007776-F783-4D7B-8ED5-324BC53E79F8-low.gif) Entity ABC Consolidated Statement of Financial Position As of December 31 20X3 20X2 Assets: Cash " $570,000 " " $475,000 " Accounts receivable " 125,000 " " 110,000 " Available-for-sale securities " 125,000 " " 120,000 " Plant and equipment " 220,000 " " 235,000 " Total assets " $1,040,000 " " $940,000 " - - - Liabilities: Total liabilities " $555,000 " " $459,000 " - - - Equity: Entity ABC shareholders' equity: " Common stock, $1 par " " 200,000 " " 200,000 " Paid-in capital " 42,000 " " 50,000 " Retained earnings " 194,500 " " 167,000 " Accumulated other comprehensive income " 22,500 " " 16,000 " Total Entity ABC shareholders' equity " 459,000 " " 433,000 " Noncontrolling interest " 26,000 " " 48,000 " Total equity " 485,000 " " 481,000 " Total liabilities and equity " $1,040,000 " " $940,000 " ##### [810-10-55-4J](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-4J) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:07b3bda0b166b6d1a3aff6c02fb594283a8a19c40a0e8fdbfe9b8141222ced0b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This consolidated statement of income illustrates the requirements in paragraph [810-10-50-1A](https://asc.understandingaccounting.org/asc/810/10/#810-10-50-1A) that the amounts of consolidated net income and the net income attributable to Entity ABC and the noncontrolling interest be presented separately on the face of the consolidated income statement. It also illustrates the requirement in paragraph 810-10-50-1A(b) that the amounts of income from continuing operations and discontinued operations attributable to Entity ABC should be disclosed. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-378CD685-09E3-403C-BA08-DC0C25F384A6-low.gif) Entity ABC Consolidated Statement of Income Year Ended December 31 20X3 20X2 20X1 Revenues " $395,000 " " $360,000 " " $320,000 " Expenses " (330,000)" " (305,000)" " (270,000)" " Income from continuing operations, before tax " " 65,000 " " 55,000 " " 50,000 " Income tax expense " (26,000)" " (22,000)" " (20,000)" " Income from continuing operations, net of tax " " 39,000 " " 33,000 " " 30,000 " " Discontinued operations, net of tax " — " (7,000)" — Net income " 39,000 " " 26,000 " " 30,000 " " Less: Net income attributable to the noncontrolling interest " " (1,500)" " (4,000)" — Net income attributable to Entity ABC " $37,500 " " $22,000 " " $30,000 " Earnings per share—basic and diluted: " Income from continuing operations attributable to Entity ABC common shareholders" $0.19 $0.14 $0.15 " Discontinued operations attributable to Entity ABC common shareholders" — (0.03) — Net income attributable to Entity ABC common shareholders $0.19 $0.11 $0.15 "Weighted-average shares outstanding, basic and diluted" " 200,000 " " 200,000 " " 200,000 " Amounts attributable to Entity ABC common shareholders: " Income from continuing operations, net of tax " " $37,500 " " $27,600 " " $30,000 " " Discontinued operations, net of tax " — " (5,600)" — Net income " $37,500 " " $22,000 " " $30,000 " ##### [810-10-55-4K](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-4K) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:be38f3b822498d459305be32cf51e7dfd27c9855618b3cb05ce7107273059bc8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This statement of consolidated comprehensive income illustrates the requirements in paragraph [810-10-50-1A(a)](https://asc.understandingaccounting.org/asc/810/10/#810-10-50-1A) that the amounts of consolidated comprehensive income and comprehensive income attributable to Entity ABC and the noncontrolling interest be presented separately on the face of the consolidated statement in which comprehensive income is presented. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-72CC5DF5-291B-4C2A-9902-E45224775C2C-low.gif) Entity ABC Statement of Consolidated Comprehensive Income Year Ended December 31 20X3 20X2 20X1 Net income " $39,000 " " $26,000 " " $30,000 " " Other comprehensive income, net of tax: " " Unrealized holding gain on available-for-sale securities, net of tax " " 5,000 " " 15,000 " " 5,000 " " Total other comprehensive income, net of tax " " 5,000 " " 15,000 " " 5,000 " Comprehensive income " 44,000 " " 41,000 " " 35,000 " Comprehensive income attributable to the noncontrolling interest " (2,000)" " (7,000)" — Comprehensive income attributable to Entity ABC " $42,000 " " $34,000 " " $35,000 " ##### [810-10-55-4L](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-4L) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:d0fffc9c235ce11ca16c4d264233b2f515ad33d13f9dcbd1e7487c2926a6d49d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This consolidated statement of changes in equity illustrates the requirements in paragraph [810-10-50-1A(c)](https://asc.understandingaccounting.org/asc/810/10/#810-10-50-1A) that Entity ABC present a reconciliation at the beginning and the end of the period of the carrying amount of total equity, equity attributable to Entity ABC, and equity attributable to the noncontrolling interest. It also illustrates that because the noncontrolling interest is part of the equity of the consolidated group, it is presented in the statement of changes in equity. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-DE9493EF-0702-4192-8CCA-55B569011742-low.gif) Entity ABC Consolidated Statement of Changes in Equity " Year Ended December 31, 20X3 " Entity ABC Shareholders Accumulated Other Comprehensive Income Retained Earnings " Common Stock " " Paid-in Capital " " Noncontrolling Interest " Total Beginning balance " $481,000 " " $167,000 " " $16,000 " " $200,000 " " $50,000 " " $48,000 " " Purchase of subsidiary shares from noncontrolling interest " " (30,000)" " 2,000 " " (8,000)" " (24,000)" Net income (loss) " 39,000 " " 37,500 " " 1,500 " " Other comprehensive income (loss), net of tax: " Unrealized gains on securities " 5,000 " " 4,500 " 500 Other comprehensive income (loss) " 5,000 " Dividends paid on common stock " (10,000)" " (10,000)" — — — — Ending balance " $485,000 " " $194,500 " " $22,500 " " $200,000 " " $42,000 " " $26,000 " Entity ABC Consolidated Statement of Changes in Equity " Year Ended December 31, 20X2 " Entity ABC Shareholders "Accumulated Comprehensive Income" " Retained Earnings " Common Stock " Paid-in Capital " Noncontrolling Interest Total Beginning balance " $400,000 " " $155,000 " " $5,000 " " $200,000 " " $40,000 " $ — Sale of subsidiary shares to noncontrolling interest " 50,000 " " (1,000)" " 10,000 " " 41,000 " Net income (loss) " 26,000 " " 22,000 " " 4,000 " " Other comprehensive income, net of tax: " Unrealized gains on securities " 15,000 " " 12,000 " " 3,000 " Other comprehensive income " 15,000 " Dividends paid on common stock " (10,000)" " (10,000)" — — — — Ending balance " $481,000 " " $167,000 " " $16,000 " " $200,000 " " $50,000 " " $48,000 " ##### [810-10-55-4M](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-4M) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:d9ac17c603fab6bc43207962a7fc068e2186369b33c0beadaefbbb59d8ab9892 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This schedule illustrates the requirements in paragraph [810-10-50-1A(d)](https://asc.understandingaccounting.org/asc/810/10/#810-10-50-1A) that Entity ABC present in notes to the consolidated financial statements a separate schedule that shows the effects of changes in Entity ABC's ownership interest in its subsidiary on Entity ABC's equity. This schedule is only required if the parent's ownership interest in a subsidiary changes in any periods presented in the consolidated financial statements. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-32AFA402-2732-4F3D-A860-3FCA1B97DC02-low.gif) Entity ABC Notes to Consolidated Financial Statements " Net Income Attributable to Entity ABC and Transfers (to) from the Noncontrolling Interest " Year Ended December 31 The purpose of this schedule is to disclose the effects of changes in Entity ABC's ownership interest in its subsidiary on Entity ABC's equity. 20X3 20X2 20X1 Net income attributable to Entity ABC "$ 37,500" $- "$ 22,000" "$ 30,000" Transfers (to) from the noncontrolling interest " Increase in Entity ABC's paid-in capital for sale of 2,000 Subsidiary A common shares " — " 10,000 " — " Decrease in Entity ABC's paid-in capital for purchase of 1,000 Subsidiary A common shares " " (8,000)" — — Net transfers (to) from noncontrolling interest " (8,000)" " 10,000 " — " Change from net income attributable to Entity ABC and transfers (to) from noncontrolling interest " "$ 29,500" "$ 32,000" " $30,000 " ##### [810-10-55-4N](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-4N) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:158fc790c76c1e5bd92a4dda2ddf9827e9ec10ca539c0c9c90cb3b22a60e23b1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in paragraph [810-10-15-14(b)(1)(ii)](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-14). Cases A, B, C, F, and G illustrate arrangements in which the limited partnership agreement requires a simple majority vote of the limited partnership's kick-out rights through voting interests to remove the general partner and the general partner cannot vote. Cases D and E demonstrate arrangements in which the limited partnership agreement requires a two-thirds vote and a unanimous vote, respectively, of the limited partnership's kick-out rights through voting interests to remove the general partner and the general partner cannot vote. To illustrate the application of the thresholds to exercise kick-out rights through voting interests for limited partnerships in paragraph [810-10-15-14(b)(1)(ii)(01)](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-14), consider the following cases: 1. a Three equal-interest limited partners (Case A) 2. b Two equal-interest limited partners (Case B) 3. c One hundred equal-interest limited partners (Case C) 4. d Required limited partner voting percentages of more than a simple majority (Case D) 5. e Four equal-interest limited partners with a required unanimous vote of the limited partnership's kick-out rights through voting interests (Case E) 6. f Limited partner and general partner with a required simple majority percentage of the limited partnership's kick-out rights through voting interests—limited partner consolidates (Case F) 7. g Four equal-interest limited partners with a required simple majority percentage of the limited partnership's kick-out rights through voting interests—no partner consolidates (Case G). ##### [810-10-55-4O](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-4O) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:d54463dadefa60cc1f4f1c53041cb30719c219d2eec8941cd160ff2db1b6d67f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume that a limited partnership has 3 limited partners, none of which have any relationship to the general partners, and that each holds an equal amount of the limited partnership's kick-out rights through voting interests (33.33 percent). In this Case, applying the simple majority requirement in the partnership agreement would require a vote of no more than two of the three limited partners to remove the general partners. Presuming the [kick-out rights](https://asc.understandingaccounting.org/glossary/k/#kick-out-rights-voting-interest-entity-definition "The rights underlying the limited partner's or partners' ability to dissolve (liquidate) the limited partnership or otherwise remove the general partners without cause.") are substantive, a limited partnership that entitles any individual limited partner to remove the general partner or a limited partnership that requires a vote of two of the limited partners to remove the general partner would not meet the condition in paragraph [810-10-15-14(b)(1)(ii)](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-14), meaning the partners would not lack the power through voting rights or similar rights to direct the activities of the partnership that most significantly impact the partnership's economic performance. Therefore, assuming none of the other criteria in paragraph [810-10-15-14](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-14) are met for the limited partnership to be considered a variable interest entity (VIE), the limited partnership would be considered a voting interest entity. However, if a vote of all three limited partners is required to remove the general partner and the limited partners do not possess substantive participating rights, the limited partnership would meet the condition in paragraph [810-10-15-14(b)(1)(ii)](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-14) because the required vote is more than a simple majority of the limited partnership's kick-out rights through voting interests. Accordingly, the limited partnership would be considered a VIE. ##### [810-10-55-4P](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-4P) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:ae09c7c505fc101f00a9e1062b7b6f519a6eff69710e13020e654e9bff6e629e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Consider the same facts as in Case A, except that there are two limited partners that each hold an equal amount of the limited partnership's kick-out rights through voting interests. In this Case, a simple majority of the limited partnership's kick-out rights through voting interests would require a vote of both limited partners. Presuming the kick-out rights are substantive, a limited partnership entitling any individual limited partner to remove the general partner or a limited partnership that requires a vote of both limited partners to remove the general partner would not meet the condition in paragraph [810-10-15-14(b)(1)(ii)](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-14), meaning the partners would not lack the power through voting rights or similar rights to direct the activities of the partnership that most significantly impact the partnership's economic performance. Therefore, assuming none of the other criteria in paragraph [810-10-15-14](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-14) are met for the limited partnership to be considered a VIE, the limited partnership would be considered a voting interest entity. ##### [810-10-55-4Q](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-4Q) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:55a40a757f327ee870a7dc2e87732e17b04ca6c3c018fe8d950862dba5573d9d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Consider the same facts as in Case A, except that there are 100 limited partners that each hold an equal amount of the limited partnership's kick-out rights through voting interests. In this Case, a simple majority of the limited partnership's kick-out rights through voting interests would require a vote of 51 limited partners. Presuming the kick-out rights are substantive, a limited partnership that requires a vote of less than 52 limited partners to remove the general partner would not meet the condition in paragraph [810-10-15-14(b)(1)(ii)](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-14), meaning the partners would not lack the power through voting rights or similar rights to direct the activities of the partnership that most significantly impact the partnership's economic performance. Therefore, assuming none of the other criteria in paragraph [810-10-15-14](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-14) are met for the limited partnership to be considered a VIE, the limited partnership would be considered a voting interest entity. However, if a vote of 52 or more limited partners is required to remove the general partner and the limited partners do not possess substantive participating rights, that limited partnership would meet the condition in paragraph [810-10-15-14(b)(1)(ii)](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-14) because the required vote is more than a simple majority of the limited partnership's kick-out rights through voting interests. Accordingly, the limited partnership would be considered a VIE. ##### [810-10-55-4R](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-4R) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:9e7a0407a491d173213dde12a72f0ae246f200fd4ca4541527971f48b71d3de0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this Case, consider the following situations based on a limited partnership agreement that requires a vote of 66.6 percent of the limited partnership's kick-out rights through voting interests to remove the general partner: 1. a Equal-interest limited partners (Case D1) 2. b Limited partners with unequal interests (Case D2). ##### [810-10-55-4S](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-4S) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:a7d935ec70d4728d48e04289aa8b5b9dc69729f47b411c4c95b6eceb32d15bbb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. There are 3 independent limited partners (none of which have any relationship to the general partner) that each hold an equal percentage (33.33 percent) of the limited partnership's kick-out rights through voting interests. A vote of 2 of the 3 limited partners represents 66.7 percent of the limited partnership's kick-out rights through voting interests, which also represents the smallest possible combination that is at least a simple majority of the limited partnership's kick-out rights through voting interests. Presuming the kick-out rights are substantive, the limited partnership would not meet the condition in paragraph [810-10-15-14(b)(1)(ii)](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-14), meaning the partners would not lack the power through voting rights or similar rights to direct the activities of the partnership that most significantly impact the partnership's economic performance. Therefore, assuming none of the other criteria in paragraph [810-10-15-14](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-14) are met for the limited partnership to be considered a VIE, the limited partnership would be considered a voting interest entity. ##### [810-10-55-4T](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-4T) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:db0a04da270eeed66fee46dba31c24f64ce38a6e988fed79683b40e1b4880d10 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. There are 3 independent limited partners (none of which have any relationship to the general partner) that hold 45 percent (Limited Partner 1), 25 percent (Limited Partner 2), and 30 percent (Limited Partner 3) of the limited partnership's kick-out rights through voting interests respectively. To remove the general partners, a vote of Limited Partner 1 in combination with either Limited Partner 2 or Limited Partner 3 would be a simple majority of the limited partnership's kick-out rights through voting interests and would satisfy the 66.6 percent contractual requirement. In contrast, a vote to exercise the kick-out right by Limited Partner 2 and Limited Partner 3 also would represent a simple majority of the limited partnership's kick-out rights through voting interests; however, their kick-out rights (55 percent) would not meet the required threshold of 66.6 percent to remove the general partners. Accordingly, assuming the limited partners do not possess substantive participating rights, the limited partnership would meet the condition in paragraph [810-10-15-14(b)(1)(ii)](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-14), meaning the partners would lack the power through voting rights or similar rights to direct the activities of the partnership that most significantly impact the partnership's economic performance because the smallest possible combination (Limited Partner 2 and Limited Partner 3) that represents at least a simple majority of the limited partnership's kick-out rights through voting interests cannot remove the general partners. Accordingly, the limited partnership would be considered a VIE. ##### [810-10-55-4U](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-4U) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:cb5cbbfc2fa1f39c633df3d08a8e6ef369d8a2f379ad19c9407f5f09bf4aa8e0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume that there are 4 independent limited partners (none of which have any relationship to the general partner) that each own 10 percent of the equity of the limited partnership in the form of limited partnership voting interests. The general partner owns 60 percent of the equity of the limited partnership and does not have kick-out rights through voting interests. The limited partners have kick-out rights through voting interests, but the limited partners must vote unanimously to kick out the general partner. Assuming the limited partners do not possess substantive participating rights, the limited partnership would meet the condition in paragraph [810-10-15-14(b)(1)(ii)](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-14), meaning the partners would lack the power through voting rights or similar rights to direct the activities of the partnership that most significantly impact the partnership's economic performance because more than a simple majority of kick-out rights through voting interests is required to remove the general partner. Accordingly, the limited partnership would be considered a VIE. ##### [810-10-55-4V](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-4V) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:fbf0c03d48b99d1c967f27833d48123e485dab754ca007f1a2d7b34c3fd2f069 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume that there is an independent limited partner (who does not have any relationship with the general partner) that holds 40 percent of the equity of the limited partnership in the form of limited partnership voting interests. The general partner owns 60 percent of the equity of the limited partnership and does not have kick-out rights through voting interests. The limited partner has kick-out rights through voting interests, and a vote of a simple majority of the kick-out rights through voting interests to remove the general partner is required. Therefore, presuming the kick-out rights are substantive, the limited partnership would not meet the condition in paragraph [810-10-15-14(b)(1)(ii)](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-14), meaning the partners would not lack the power through voting rights or similar rights to direct the activities of the partnership that most significantly impact the partnership's economic performance because the single limited partner is able to exercise the kick-out rights unilaterally. Assuming none of the other criteria in paragraph [810-10-15-14](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-14) are met for the limited partnership to be considered a VIE, the limited partnership would be considered a voting interest entity. Accordingly, the limited partner that holds 40 percent of the equity of the limited partnership in the form of limited partnership voting interests would be deemed to have a controlling financial interest in the limited partnership on the basis of the guidance in paragraph [810-10-25-1A](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-1A). ##### [810-10-55-4W](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-4W) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:102cab42b7ef1abbb1b7262e8e84a5a0e94c2a6a74af36bf0982b59e953ead35 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume that there are 4 independent limited partners that each own 10 percent of the equity of the limited partnership in the form of limited partnership voting interests. The general partner owns 60 percent of the equity of the limited partnership and does not have kick-out rights through voting interests. The limited partners have kick-out rights through voting interests, and a vote of a simple majority of the kick-out rights through voting interests to remove the general partner is required. Therefore, presuming the kick-out rights are substantive, the limited partnership would not meet the condition in paragraph [810-10-15-14(b)(1)(ii)](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-14), meaning the partners would not lack the power through voting rights or similar rights to direct the activities of the partnership that most significantly impact the partnership's economic performance. Assuming none of the other criteria in paragraph [810-10-15-14](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-14) are met for the limited partnership to be considered a VIE, the limited partnership would be considered a voting interest entity. Accordingly, no partner would be deemed to have a controlling financial interest in the limited partnership on the basis of the guidance in paragraph [810-10-25-1A](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-1A) because no single limited partner owns a majority of the limited partnership's kick-out rights through voting interests. Therefore, no partner consolidates the limited partnership. ### Variable Interest Entities ##### [810-10-55-5](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:11b6a4fb8851364ef59ec69f1325f21a846e0888bbaf736fa57fa76a4de84812 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2009-17](https://asc.understandingaccounting.org/updates/asu-2009-17/). ##### [810-10-55-6](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:672c36a84771e7a69fdb67ed7df2788d1b34d24618b2b5adb479f7d6f5025a10 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2009-17](https://asc.understandingaccounting.org/updates/asu-2009-17/). ##### [810-10-55-7](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:ea726d208afb3d32fea9e61236a63b8ea31795f4ffe74df2ae58ca4bd0abfcae Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2009-17](https://asc.understandingaccounting.org/updates/asu-2009-17/). ##### [810-10-55-8](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:4c6b801442f731cb85daa45a720259e7ca85975b5b1411da7bf303717b2dddc3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2009-17](https://asc.understandingaccounting.org/updates/asu-2009-17/). ##### [810-10-55-8A](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-8A) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:7bc2b4c68b92c462f43a9c580bd20dd4895e8fc7a460b591bef9a85ecb50578b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An asset management company creates a series fund structure in which there are multiple mutual funds (Fund A, Fund B, and Fund C) within one (umbrella) trust. Each mutual fund, referred to as a series fund, represents a separate structure and [legal entity](https://asc.understandingaccounting.org/glossary/l/#legal-entity "Any legal structure used to conduct activities or to hold assets. Some examples of such structures are corporations, partnerships, limited liability companies, grantor trusts, and other trusts."). The asset management company sells shares in each series fund to external shareholders. Each series fund is required to comply with the requirements included in the Investment Company Act of 1940 for registered mutual funds. ##### [810-10-55-8B](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-8B) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:7c32b172b56e12b80e1383a6bb0ef45bc0c8b98d1a78fceff7ad3a5ddccaa5be Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The purpose, objective, and strategy of each series fund are established at formation and agreed upon by the shareholders in accordance with the operating agreements. Returns of each series fund are allocated only to that respective fund's shareholders. There is no cross-collateralization among the individual series funds. Each series fund has its own fund management team, employed by the asset management company, which has the ability to carry out the investment strategy approved by the fund shareholders and manage the investments of the series fund. The Board of Trustees is established at the (umbrella) trust level. ##### [810-10-55-8C](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-8C) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:9b2af9638c2090f55128a547fa6e0c5cbfc4f0f63a4a919b2065e0342432cd74 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The asset management company is compensated on the basis of an established percentage of assets under management in the respective series funds for directing the activities of each fund within its stated objectives. The fees paid to the asset management company are both of the following: 1. a Compensation for services provided and commensurate with the level of effort required to provide the services 2. b Part of service arrangements that include only terms, conditions, or amounts that are customarily present in arrangements for similar services negotiated at arm's length. ##### [810-10-55-8D](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-8D) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:50e34aa77b440b20db8e791f43d8bdadb71aa788930d4addc73d7ec77b9e618e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The asset management company has sold 65 percent of the shares in Fund A to external shareholders and holds the remaining 35 percent of shares in Fund A. ##### [810-10-55-8E](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-8E) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:fa0d3a7f00823fcb09fb51e2d329de2bed665851e82da5a5a5ca997dbe7e0849 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The shareholders in each series fund have the ability through voting rights to do the following: 1. a Remove and replace the Board of Trustees 2. b Remove and replace the asset management company 3. c Vote on the compensation of the asset management company 4. d Vote on changes to the fundamental investment strategy of the fund 5. e Approve the sale of substantially all of the assets of the fund 6. f Approve a merger and/or reorganization of the fund 7. g Approve the liquidation or dissolution of the fund 8. h Approve charter and bylaw amendments 9. i Increase the authorized number of shares. ##### [810-10-55-8F](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-8F) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:1db3384b2052a520a499d8c46707e0c18720bd334f37f0953b48ef057c4373a1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For this series fund structure, the voting rights in paragraph [810-10-55-8E(a)](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-8E) are exercised at the (umbrella) trust level. That is, a simple majority vote of shareholders of all of the series funds (Fund A, Fund B, and Fund C) is required to exercise the voting right to remove and replace the Board of Trustees of the (umbrella) trust. However, the voting rights in paragraph [810-10-55-8E(b) through (i)](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-8E) are series fund-level rights. That is, only a simple majority vote of Series Fund A's shareholders is required to exercise the voting rights in paragraph [810-10-55-8E(b) through (i)](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-8E) for Series Fund A. ##### [810-10-55-8G](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-8G) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:f85877c82ef5ac192e8b06ff88c62ed493b0ad0e6a40cde33514cd47fbfe172d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. According to paragraph [810-10-15-14(b)(1)](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-14), one condition for a legal entity to be considered a VIE is that, as a group, the holders of the equity investment at risk lack the power, through voting rights or similar rights, to direct the activities of a legal entity that most significantly impact the entity's economic performance. Paragraph [810-10-15-14(b)(1)(i)](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-14) indicates that, for legal entities other than limited partnerships, investors lack that power through voting rights or similar rights if no owners hold voting rights or similar rights (such as those of a common shareholder in a corporation). ##### [810-10-55-8H](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-8H) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:238735caeeee9c117af91e72923c858163b10747eba78f1663d858e1c2866742 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The shareholders in each series fund lack the ability at a series-specific level to remove and replace the Board of Trustees of the (umbrella) trust, because the shareholders in each series fund are required to vote on an aggregate basis to exercise that right. However, based on an evaluation of the purpose and design of each series fund, the shareholders in each series fund are able to direct the activities of the funds that most significantly impact the funds' economic performance through their voting rights. For example, the activities that most significantly impact the economic performance of Fund A, which include making decisions on how to invest the assets of that fund, are carried out by the asset management company. However, the shareholders of Fund A are able to effectively direct those activities through the voting rights in paragraph [810-10-55-8E(b) through (d)](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-8E). Shareholders of Fund A lack the unilateral ability to remove and replace the Board of Trustees. However, because shareholders have the ability to directly remove and replace the asset management company, approve the compensation of the asset management company, and vote on the investment strategy of Fund A, the investors are deemed to have the power through voting rights to direct the activities of Fund A that most significantly impact the fund's economic performance in accordance with paragraph [810-10-15-14(b)(1)](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-14). Therefore, assuming none of the other criteria in paragraph [810-10-15-14](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-14) are met for Fund A to be considered a VIE, Fund A would be considered a voting interest entity. ##### [810-10-55-9](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:5f1490a37b12ca2b4f8886d284ba31066d09ea0e9998fde44f2b84e78f969eb9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2018-17](https://asc.understandingaccounting.org/updates/asu-2018-17/). ##### [810-10-55-10](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:a5feab9ffd68f58274cd11021db62b841b4ef711307457578499cd6dd54ef56f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [810-10-55-11](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:e82dfeb58dd184773f3d73c6aa1bf2b4f8ab922841783f59cd20bfed08db1ff1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [810-10-55-12](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-12) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:738301ca4b5eeb16f763049cec9a81d9fd32a7e0e8e9215416ea9c66dc68bf0e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [810-10-55-13](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-13) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:4286f8c124bd1d9c47707d4e495676b94c1e776231690a89d85c48dcbae78b85 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [810-10-55-14](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-14) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:c3aa4ba49472f33c647ada0da182dd9bf1785826dcff4ea4238c9731ac6fe123 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [810-10-55-15](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-15) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:23e5d898c9864f68ff09e84bb95d89ac9a035e4cad11413752e2f39a3c5b1c88 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [810-10-55-16](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-16) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:0ebd18635485d5f4626a6594264cec13bb2fe09dfd537770eccfb123cbf0385b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The Variable Interest Entities Subsections provide guidance for identifying entities for which analysis of voting interests, and the holdings of those voting interests, is not effective in determining whether a controlling financial interest exists because the holders of the equity investment at risk do not have sufficient equity at risk for the legal entity to finance its activities without additional subordinated financial support or because they lack any of the following: 1. a The power, through voting rights or similar rights, to direct the activities of a legal entity that most significantly impact the entity's economic performance 2. b The obligation to absorb the expected losses of the legal entity 3. c The right to receive the expected residual returns of the legal entity. Those entities are called [variable interest entities](https://asc.understandingaccounting.org/glossary/v/#variable-interest-entity "A legal entity subject to consolidation according to the provisions of the Variable Interest Entities Subsections of Subtopic 810-10.") (VIEs). The Variable Interest Entities Subsections also provide guidance for determining whether a reporting entity shall consolidate a VIE. A reporting entity that consolidates a VIE is called the [primary beneficiary](https://asc.understandingaccounting.org/glossary/p/#primary-beneficiary "An entity that consolidates a variable interest entity (VIE). See paragraphs 810-10-25-38 through 25-38J for guidance on determining the primary beneficiary.") of that VIE. This Subsection provides guidance for identifying variable interests in a VIE. ##### [810-10-55-17](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-17) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:6496767470d4f758e79a04735b1ec8ed510f24e56b6c439d04078fccdc345c65 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The identification of variable interests requires an economic analysis of the rights and obligations of a legal entity's assets, liabilities, equity, and other contracts. Variable interests are contractual, ownership, or other pecuniary interests in a legal entity that change with changes in the [fair value](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.") of the legal entity's net assets exclusive of variable interests. The Variable Interest Entities Subsections use the terms [expected losses and expected residual returns](https://asc.understandingaccounting.org/glossary/e/#expected-losses-and-expected-residual-returns "Expected losses and expected residual returns refer to amounts derived from expected cash flows as described in FASB Concepts Statement No. 7, Using Cash Flow Information and Present Value in Accounting Measurements. However, expected losses and expected residual returns refer to amounts discounted and otherwise adjusted for market factors and assumptions rather than to undiscounted cash flow estimates. The definitions of expected losses and expected residual returns specify which amounts are to be considered in determining expected losses and expected residual returns of a variable interest entity (VIE). (P) December 16, 2024; (N) December 16, 2025 105-10-65-9 Expected losses and expected residual returns refer to amounts derived from expected cash flows. However, expected losses and expected residual returns refer to amounts discounted and otherwise adjusted for market factors and assumptions rather than to undiscounted cash flow estimates. The definitions of expected losses and expected residual returns specify which amounts are to be considered in determining expected losses and expected residual returns of a variable interest entity (VIE). A computation of expected losses, expected residual returns, and expected variability is illustrated in paragraphs 810-10-55-42810-10-55-43810-10-55-44810-10-55-45810-10-55-46810-10-55-47810-10-55-48810-10-55-49.") to describe the [expected variability](https://asc.understandingaccounting.org/glossary/e/#expected-variability "Expected variability is the sum of the absolute values of the expected residual return and the expected loss. Expected variability in the fair value of net assets includes expected variability resulting from the operating results of the legal entity.") in the fair value of a legal entity's net assets exclusive of variable interests. ##### [810-10-55-18](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-18) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:944f9e5de3861b560477dea3b10e9814bde0b169b6765eb36402a3b3c1593e01 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For a legal entity that is not a VIE (sometimes called a voting interest entity), all of the legal entity's assets, liabilities, and other contracts are deemed to create variability, and the equity investment is deemed to be sufficient to absorb the expected amount of that variability. In contrast, VIEs are designed so that some of the entity's assets, liabilities, and other contracts create variability and some of the entity's assets, liabilities, and other contracts (as well as its equity at risk) absorb or receive that variability. ##### [810-10-55-19](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-19) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:d2800f627fffc104207657233ce37f69c185c3f52a277eab3cdba50509ef0518 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The identification of variable interests involves determining which assets, liabilities, or contracts create the legal entity's variability and which assets, liabilities, equity, and other contracts absorb or receive that variability. The latter are the legal entity's variable interests. The labeling of an item as an asset, liability, equity, or as a contractual arrangement does not determine whether that item is a variable interest. It is the role of the item—to absorb or receive the legal entity's variability—that distinguishes a variable interest. That role, in turn, often depends on the design of the legal entity. ##### [810-10-55-20](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-20) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:1e2fa2af3866be771c39b2ddffbe61a15f65b139f39e3f8d85e31fa79b6b6f64 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraphs [810-10-55-16 through 55-41](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-16) describe examples of variable interests in VIEs subject to the Variable Interest Entities Subsections. These paragraphs are not intended to provide a complete list of all possible variable interests. In addition, the descriptions are not intended to be exhaustive of the possible roles, and the possible variability, of the assets, liabilities, equity, and other contracts. Actual instruments may play different roles and be more or less variable than the examples discussed. Finally, these paragraphs do not analyze the relative significance of different variable interests, because the relative significance of a variable interest will be determined by the design of the VIE. The identification and analysis of variable interests must be based on all of the facts and circumstances of each entity. ##### [810-10-55-21](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-21) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:de4fd886928f89ad5e94c3893e49b13825cae6cf22dbefe6e7793197ea406587 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraphs [810-10-55-16 through 55-41](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-16) also do not discuss whether the variable interest is a variable interest in a specified asset of a VIE or in the VIE as a whole. Guidance for making that determination is provided in paragraphs [810-10-25-55 through 25-56](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-55) . Paragraphs [810-10-25-57 through 25-59](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-57) provide guidance for when a VIE shall be separated with each part evaluated to determine if it has a primary beneficiary. ##### [810-10-55-22](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-22) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:f8bdea0e5596398c9053c92069c8894ff29d7336a26a99de55523c53f7845baf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Equity investments in a VIE are variable interests to the extent they are at risk. (Equity investments at risk are described in paragraph [810-10-15-14](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-14).) Some equity investments in a VIE that are determined to be not at risk by the application of that paragraph also may be variable interests if they absorb or receive some of the VIE's variability. If a VIE has a contract with one of its equity investors (including a financial instrument such as a loan receivable), a reporting entity applying this guidance to that VIE shall consider whether that contract causes the equity investor's investment not to be at risk. If the contract with the equity investor represents the only asset of the VIE, that equity investment is not at risk. ##### [810-10-55-23](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-23) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:85382dd7c2d21cd87ff7961116d1c69650bb88efc0275917a88dcaa854c71ffa Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Investments in subordinated beneficial interests or subordinated debt instruments issued by a VIE are likely to be variable interests. The most subordinated interest in a VIE will absorb all or part of the expected losses of the VIE. For a voting interest entity the most subordinated interest is the entity's equity; for a VIE it could be debt, beneficial interests, equity, or some other interest. The return to the most subordinated interest usually is a high rate of return (in relation to the interest rate of an instrument with similar terms that would be considered to be investment grade) or some form of participation in residual returns. ##### [810-10-55-24](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-24) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:aa4c42d7dec0156d510ce579c1add5722f9bf3473fb4fc7f6327915de3d3bcdf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Any of a VIE's liabilities may be variable interests because a decrease in the fair value of a VIE's assets could be so great that all of the liabilities would absorb that decrease. However, senior beneficial interests and senior debt instruments with fixed interest rates or other fixed returns normally would absorb little of the VIE's expected variability. By definition, if a senior interest exists, interests subordinated to the senior interests will absorb losses first. The variability of a senior interest with a variable interest rate is usually not caused by changes in the value of the VIE's assets and thus would usually be evaluated in the same way as a fixed-rate senior interest. Senior interests normally are not entitled to any of the residual return. ##### [810-10-55-25](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-25) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:2dc116a92fe33f447df93dc709abaffac33e07d958e9a500bb8ba84bb4bf0b0a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Guarantees of the value of the assets or liabilities of a VIE, written put options on the assets of the VIE, or similar obligations such as some liquidity commitments or agreements (explicit or implicit) to replace impaired assets held by the VIE are variable interests if they protect holders of other interests from suffering losses. To the extent the counterparties of guarantees, written put options, or similar arrangements will be called on to perform in the event expected losses occur, those arrangements are variable interests, including fees or premiums to be paid to those counterparties. The size of the premium or fee required by the counterparty to such an arrangement is one indication of the amount of risk expected to be absorbed by that counterparty. ##### [810-10-55-26](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-26) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:15c9eba321c81134470f44da43b481bb98dc304d72c4a7fdfbcfae66704f2e2d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the VIE is the writer of a guarantee, written put option, or similar arrangement, the items usually would create variability. Thus, those items usually will not be a variable interest of the VIE (but may be a variable interest in the counterparty). ##### [810-10-55-27](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-27) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:325b98823ec95d72e1a7931e2081ad9ed399bb2dcc32af899da1d65660307fa2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Forward contracts to buy assets or to sell assets that are not owned by the VIE at a fixed price will usually expose the VIE to risks that will increase the VIE's expected variability. Thus, most forward contracts to buy assets or to sell assets that are not owned by the VIE are not variable interests in the VIE. ##### [810-10-55-28](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-28) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:08ca1e2ce993eb2695faccc2cdbb61497415fc5f656f9dea25de18d5a0b184de Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A forward contract to sell assets that are owned by the VIE at a fixed price will usually absorb the variability in the fair value of the asset that is the subject of the contract. Thus, most forward contracts to sell assets that are owned by the VIE are variable interests with respect to the related assets. Because forward contracts to sell assets that are owned by the VIE relate to specific assets of the VIE, it will be necessary to apply the guidance in paragraphs [810-10-25-55 through 25-56](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-55) to determine whether a forward contract to sell an asset owned by a VIE is a variable interest in the VIE as opposed to a variable interest in that specific asset. ##### [810-10-55-29](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-29) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:cd359bef11653dff2ffa3c5d45e81244033e8fb56b8d9b36f64265f9863ecd68 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Derivative instruments held or written by a VIE shall be analyzed in terms of their option-like, forward-like, or other variable characteristics. If the instrument creates variability, in the sense that it exposes the VIE to risks that will increase expected variability, the instrument is not a variable interest. If the instrument absorbs or receives variability, in the sense that it reduces the exposure of the VIE to risks that cause variability, the instrument is a variable interest. ##### [810-10-55-30](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-30) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:e5baef87ac1b39bc92969101ef6d23544b437ff5c5e50d1f1a6eed4b45d42e08 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Derivatives, including total return swaps and similar arrangements, can be used to transfer substantially all of the risk or return (or both) related to certain assets of an VIE without actually transferring the assets. Derivative instruments with this characteristic shall be evaluated carefully. ##### [810-10-55-31](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-31) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:1c65a5ee199acbc5460855437d2e5a14a48dfd14d003c4e7bbc7c973605b36e0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Some assets and liabilities of a VIE have embedded derivatives. For the purpose of identifying variable interests, an embedded derivative that is clearly and closely related economically to its asset or liability host is not to be evaluated separately. ##### [810-10-55-32](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-32) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:3e80fd73b89073ec7bb45fc2db3674d55444154385f634ec69f80cc1fe266d61 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assets held by a VIE almost always create variability and, thus, are not variable interests. However, as discussed separately in this Subsection, assets of the VIE that take the form of derivatives, guarantees, or other similar contracts may be variable interests. ##### [810-10-55-33](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-33) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:1c6bb34fecdeb2dca5746ecddf09304dfd0161fa3d95b27765fbdcfa5f954440 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2009-17](https://asc.understandingaccounting.org/updates/asu-2009-17/). ##### [810-10-55-34](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-34) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:20a47ab8fbb0778cdf6c778043650ba5cac303c3d21d0cd727f23d34b238093f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2009-17](https://asc.understandingaccounting.org/updates/asu-2009-17/). ##### [810-10-55-35](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-35) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:0f79032c931dd7f81d1d412a39f46a11d461b1901374c654798da17aaa5c7cc9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2009-17](https://asc.understandingaccounting.org/updates/asu-2009-17/). ##### [810-10-55-36](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-36) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:d918305a3b52093705c9ff74a576f60579ab36522bd6979438a0809aa0c2e160 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2009-17](https://asc.understandingaccounting.org/updates/asu-2009-17/). ##### [810-10-55-37](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-37) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:5409bcbdf9f4cf2a625e6af2f5dc6dc937d8e3a3a7f43cd383ef21e1da19529f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Fees paid to a legal entity's [decision maker(s)](https://asc.understandingaccounting.org/glossary/d/#decision-maker "An entity or entities with the power to direct the activities of another legal entity that most significantly impact the legal entity's economic performance according to the provisions of the Variable Interest Entities Subsections of Subtopic 810-10.") or service provider(s) are not variable interests if all of the following conditions are met: 1. a The fees are compensation for services provided and are commensurate with the level of effort required to provide those services. 2. b [Subparagraph superseded by Accounting Standards Update No. 2015-02](https://asc.understandingaccounting.org/updates/asu-2015-02/). 3. c The decision maker or service provider does not hold other interests in the VIE that individually, or in the aggregate, would absorb more than an insignificant amount of the VIE's [expected losses](https://asc.understandingaccounting.org/glossary/e/#expected-losses "A legal entity that has no history of net losses and expects to continue to be profitable in the foreseeable future can be a variable interest entity (VIE). A legal entity that expects to be profitable will have expected losses. A VIE's expected losses are the expected negative variability in the fair value of its net assets exclusive of variable interests and not the anticipated amount or variability of the net income or loss.") or receive more than an insignificant amount of the VIE's [expected residual returns](https://asc.understandingaccounting.org/glossary/e/#expected-residual-returns "A variable interest entity's (VIE's) expected residual returns are the expected positive variability in the fair value of its net assets exclusive of variable interests."). 4. d The service arrangement includes only terms, conditions, or amounts that are customarily present in arrangements for similar services negotiated at arm's length. 5. e [Subparagraph superseded by Accounting Standards Update No. 2015-02](https://asc.understandingaccounting.org/updates/asu-2015-02/). 6. f [Subparagraph superseded by Accounting Standards Update No. 2015-02](https://asc.understandingaccounting.org/updates/asu-2015-02/). ##### [810-10-55-37A](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-37A) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:8ee054e7a9eff2ac63a469636b0e70d5af31982faa440c6579125efed8b4babf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2015-02](https://asc.understandingaccounting.org/updates/asu-2015-02/). ##### [810-10-55-37B](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-37B) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:abefc2fbbda9ed2e209ba3e8785b958dbcefc490274b6d24540db143a1397f33 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Facts and circumstances should be considered when assessing the conditions in paragraph [810-10-55-37](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-37). An arrangement that is designed in a manner such that the fee is inconsistent with the decision maker's or service provider's role or the type of service would not meet those conditions. To assess whether a fee meets those conditions, a reporting entity may need to analyze similar arrangements among parties outside the relationship being evaluated. However, a fee would not presumptively fail those conditions if similar service arrangements did not exist in the following circumstances: 1. a The fee arrangement relates to a unique or new service. 2. b The fee arrangement reflects a change in what is considered customary for the services. In addition, the magnitude of a fee, in isolation, would not cause an arrangement to fail the conditions. ##### [810-10-55-37C](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-37C) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:ff2fc89e4c599e6b227748d9d9781302be7f11c64f315c7a578b467494a742e6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Fees or payments in connection with agreements that expose a reporting entity (the decision maker or the service provider) to risk of loss in the VIE would not be eligible for the evaluation in paragraph [810-10-55-37](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-37). Those fees include, but are not limited to, the following: 1. a Those related to guarantees of the value of the assets or liabilities of a VIE 2. b Obligations to fund operating losses 3. c Payments associated with written put options on the assets of the VIE 4. d Similar obligations, such as some liquidity commitments or agreements (explicit or implicit) that protect holders of other interests from suffering losses in the VIE. Therefore, those fees should be considered for evaluating the characteristic in paragraph [810-10-25-38A(b)](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A). Examples of those variable interests are discussed in paragraphs [810-10-55-25](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-25) and [810-10-55-29](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-29). ##### [810-10-55-37D](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-37D) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:ec467d591877ef7b3f170f86dcdfcefec929632434e58735fc8e512aeb033dd7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For purposes of evaluating the conditions in paragraph [810-10-55-37](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-37), any variable interest in an entity that is held by a [related party](https://asc.understandingaccounting.org/glossary/r/#related-parties "Related parties include: Affiliates of the entity Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity Trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management Principal owners of the entity and members of their immediate families Management of the entity and members of their immediate families Other parties with which the entity may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.") of the decision maker or service provider should be considered in the analysis. Specifically, a decision maker or service provider should include its direct variable interests in the entity and its indirect variable interests in the entity held through related parties, considered on a proportionate basis. For example, if a decision maker or service provider owns a 20 percent interest in a related party and that related party owns a 40 percent interest in the entity being evaluated, the decision maker's or service provider's interest would be considered equivalent to an 8 percent direct interest in the entity for the purposes of evaluating whether the fees paid to the decision maker(s) or the service provider(s) are not variable interests (assuming that they have no other relationships with the entity). The term _related parties_ in this paragraph refers to all parties as defined in paragraph [810-10-25-43](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-43), with the following exceptions: 1. a An employee of the decision maker or service provider (and its other related parties), except if the employee is used in an effort to circumvent the provisions of the Variable Interest Entities Subsections of this Subtopic. 2. b An employee benefit plan of the decision maker or service provider (and its other related parties), except if the employee benefit plan is used in an effort to circumvent the provisions of the Variable Interest Entities Subsections of this Subtopic. For purposes of evaluating the conditions in paragraph [810-10-55-37](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-37), the quantitative approach described in the definitions of the terms _expected losses_, _expected residual returns_, and _expected variability_ is not required and should not be the sole determinant as to whether a reporting entity meets such conditions. ##### [810-10-55-38](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-38) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:09d2b8a4e7122091747b0df3a4189221e14e1862ed5fe5d8897d1549fe3308e4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Fees paid to decision makers or service providers that do not meet all of the conditions in paragraph [810-10-55-37](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-37) are variable interests. ##### [810-10-55-39](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-39) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:5eda9a9fec413975d1d2f0297bb8bbf747b2c92d990e12ae5e6a7a14b5982bab Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Receivables under an operating lease are assets of the lessor entity and provide returns to the lessor entity with respect to the leased property during that portion of the asset's life that is covered by the lease. Most operating leases do not absorb variability in the fair value of a VIE's net assets because they are a component of that variability. Guarantees of the residual values of leased assets (or similar arrangements related to leased assets) and options to acquire leased assets at the end of the lease terms at specified prices may be variable interests in the lessor entity if they meet the conditions described in paragraphs [810-10-25-55 through 25-56](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-55) . Alternatively, such arrangements may be variable interests in portions of a VIE as described in paragraph [810-10-25-57](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-57). The guidance in paragraphs [810-10-55-23 through 55-24](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-23) related to debt instruments applies to creditors of lessor entities. ##### [810-10-55-40](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-40) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:2534e4fdecb29e1a229e6a97cf8e8b0ac91150212e1564ca10a5892154d9f34f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. One VIE is the primary beneficiary of another VIE if it meets the conditions in paragraph [810-10-25-38A](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A). A VIE that is the primary beneficiary of a second VIE will consolidate that second VIE. If another reporting entity consolidates the first VIE, that reporting entity's consolidated financial statements include the second VIE because the second VIE had already been consolidated by the first. For example, if Entity A (a VIE) is the primary beneficiary of Entity B (a VIE), Entity A consolidates Entity B. If Entity C is the primary beneficiary of Entity A, Entity C consolidates Entity A, and Entity C's consolidated financial statements include Entity B because Entity A has consolidated Entity B. ##### [810-10-55-41](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-41) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:64ecbec62fe270cc0cb7c76e34179d2e1c6b03ee3b6e8ff58542419ea5fa04b7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A transferor's interests in financial assets in a VIE is a variable interest in the transferee entity but it is not a variable interest in a second VIE to which the transferee issues a beneficial interest. The following illustrates this point: 1. a Entity A transfers financial assets to VIE B (a VIE that holds no other assets), retains a subordinated beneficial interest, and reports the transfer as a sale under the provisions of Topic 860. 2. b VIE B issues all of its senior beneficial interests in the transferred assets to VIE C. VIE C issues various types of interests in return for cash and uses the cash to pay VIE B. VIE B uses the cash received from VIE C to pay Entity A. 3. c Entity A's subordinated beneficial interest is a variable interest in VIE B, but neither VIE B nor Entity A has a variable interest in VIE C. #### Illustrations ##### [810-10-55-42](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-42) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:c4f742464c891049eef0ac15bda83aedb3b0c57e6dc236072cade06bad0aeb82 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates a computation of [expected losses](https://asc.understandingaccounting.org/glossary/e/#expected-losses "A legal entity that has no history of net losses and expects to continue to be profitable in the foreseeable future can be a variable interest entity (VIE). A legal entity that expects to be profitable will have expected losses. A VIE's expected losses are the expected negative variability in the fair value of its net assets exclusive of variable interests and not the anticipated amount or variability of the net income or loss."), [expected residual returns](https://asc.understandingaccounting.org/glossary/e/#expected-residual-returns "A variable interest entity's (VIE's) expected residual returns are the expected positive variability in the fair value of its net assets exclusive of variable interests."), and [expected variability](https://asc.understandingaccounting.org/glossary/e/#expected-variability "Expected variability is the sum of the absolute values of the expected residual return and the expected loss. Expected variability in the fair value of net assets includes expected variability resulting from the operating results of the legal entity.") and is intended to explain the meaning of those terms. Entities will not necessarily be able to estimate probabilities to use a precise computation of the type illustrated, but they should use their best efforts to achieve the objective described. This Example is based on a hypothetical pool of financial assets with total contractual cash flows of $1 billion and has the following assumptions: 1. a A single party holds all of the beneficial interests in the VIE, and the VIE has no liabilities. 2. b There is no decision maker because the VIE's activities are completely predetermined. 3. c All cash flows are expected to occur in one year or not to occur at all. 4. d The appropriate discount rate (the interest rate on risk-free investments) is 5 percent. 5. e No other factors affect the fair value of the assets. Thus, the present value of the expected cash flows from the pool of financial assets is assumed to be equal to the fair value of the assets. ##### [810-10-55-43](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-43) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:e4f280b20200d0a37f6cf3412c74e0d818511a900e8404f29fc4c1e91dc08719 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example uses a simple situation intended to illustrate the concepts of expected losses, expected residual returns, and expected variability. Since it is assumed that there is only one party involved, the identity of the primary beneficiary is obvious. ##### [810-10-55-44](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-44) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:425992071c9c9e1b2d6046571a53df78c1847d43415b8c694d5327fe8fa3a2b5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table shows the computation of expected cash flows using the cash flow possibilities that the variable interest holder has identified. The items to be included in expected cash flows of a VIE are described in the definition of the terms [expected losses](https://asc.understandingaccounting.org/glossary/e/#expected-losses "A legal entity that has no history of net losses and expects to continue to be profitable in the foreseeable future can be a variable interest entity (VIE). A legal entity that expects to be profitable will have expected losses. A VIE's expected losses are the expected negative variability in the fair value of its net assets exclusive of variable interests and not the anticipated amount or variability of the net income or loss."), [expected residual returns](https://asc.understandingaccounting.org/glossary/e/#expected-residual-returns "A variable interest entity's (VIE's) expected residual returns are the expected positive variability in the fair value of its net assets exclusive of variable interests."), and [expected variability](https://asc.understandingaccounting.org/glossary/e/#expected-variability "Expected variability is the sum of the absolute values of the expected residual return and the expected loss. Expected variability in the fair value of net assets includes expected variability resulting from the operating results of the legal entity."). - ![](https://asc.understandingaccounting.org/asc-img/GUID-FA87892C-8572-4957-A086-1D130E6F07D7-low.gif) (Amounts in Thousands) Estimated Cash Flows Probability Expected Cash Flows Fair Value " $650,000 " 5.0% " $32,500 " " $30,952 " " 700,000 " 10.0 " 70,000 " " 66,667 " " 750,000 " 25.0 " 187,500 " " 178,571 " " 800,000 " 25.0 " 200,000 " " 190,477 " " 850,000 " 20.0 " 170,000 " " 161,905 " " 900,000 " 15.0 " 135,000 " " 128,571 " 100.0% " $795,000 " " $757,143 " ##### [810-10-55-45](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-45) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:2b7c329ba8e1df295ceb02423f942a316b349a6bf90239d56e4c19cabddf459a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The expected cash flows are $795,000, and the fair value of the pool of assets is $757,143. ##### [810-10-55-46](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-46) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:0302da7f8abf593db51b265f8d1846e11c242ef0dbe5df015bd443fea4450b79 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table shows how expected losses are computed once the expected cash flows are determined. Estimated cash flows (possible outcomes) are compared with the computed expected cash flows (probability-weighted outcomes). Estimated cash flows that are less than the expected cash flows contribute to expected losses, and cash flow possibilities that exceed the expected cash flows contribute to expected residual returns. - ![](https://asc.understandingaccounting.org/asc-img/GUID-F96BA23B-7195-4C13-885E-F4A688240F10-low.gif) (Amounts in Thousands) Estimated Cash Flows (a) Expected Cash Flows Difference Estimated (Losses) Residual Returns Probability Expected Losses Based on Expected Cash Flows Expected Losses Based on Fair Value " $650,000 " " $795,000 " " $(145,000)" 5.0% " $(7,250)" " $(6,905)" " 700,000 " " 795,000 " " (95,000)" 10.0 " (9,500)" " (9,048)" " 750,000 " " 795,000 " " (45,000)" 25.0 " (11,250)" " (10,714)" " 800,000 " " 795,000 " " 5,000 " 25.0 " 850,000 " " 795,000 " " 55,000 " 20.0 " 900,000 " " 795,000 " " 105,000 " 15.0 100.0% " $(28,000)" " $(26,667)" (a) "The computation in this Example uses the probability times the difference between the estimated cash flows and expected cash flows and then discounts the result to arrive at fair value. The same result can be achieved by using the probability times the difference between the present value of the estimated cash flows and the fair value. In situations in which the timing of the cash flows varies, that alternate form may be easier to use." ##### [810-10-55-47](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-47) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:c71feb05dc0d5bcc658bb55179e8d70ce4016d41877121af862b0f79df9bd765 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The term _expected losses_ refers to the expected losses based on fair value (using fair value as the benchmark), which in this Example is $26.667 million. ##### [810-10-55-48](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-48) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:768ff28e4525c555890a19556f1d6487abeb25e0ed7bf36e7fa87008ca1835eb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table shows how expected residual returns are computed for the same pool of assets. - ![](https://asc.understandingaccounting.org/asc-img/GUID-A4A23970-36CB-4AA4-9009-3CAC4997AF76-low.gif) (Amounts in Thousands) Estimated Cash Flows Expected Cash Flows Difference Estimated (Losses) Residual Returns Probability Expected Residual Return Based on Expected Cash Flows Expected Residual Return Based on Fair Value " $650,000 " " $795,000 " " $(145,000)" 5.0% " 700,000 " " 795,000 " " (95,000)" 10.0 " 750,000 " " 795,000 " " (45,000)" 25.0 " 800,000 " " 795,000 " " 5,000 " 25.0 " $1,250 " " $1,191 " " 850,000 " " 795,000 " " 55,000 " 20.0 " 11,000 " " 10,476 " " 900,000 " " 795,000 " " 105,000 " 15.0 " 15,750 " " 15,000 " 100.0% " $28,000 " " $26,667 " ##### [810-10-55-49](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-49) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:1c82a184dffe3b1000b5b88c2b176cd0324353a1fa50bdcf782a2c391d8d18d5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The term _expected residual returns_ refers to the expected residual returns based on fair value (using fair value as the benchmark), which in this Example is $26.667 million. Expected variability is a measure of total variability in either direction. It is the sum of the absolute values of the expected losses and expected residual returns. ##### [810-10-55-50](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-50) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:cad196dc704eef2a8806ffb6eba1ccf36cbeaf2e03a3d6760212731a67f7dc86 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the calculation of expected losses if a legal entity has no history of net losses and expects continued profitability. This Example has the following assumptions: 1. a On January 1, 2004, Entity A is formed to purchase a building, 95 percent of which is financed by debt and 5 percent by equity. The lenders will have recourse only to the building in the event that Entity A does not make the required debt payments. 2. b On the same day, Entity B enters into a five-year-market-rate lease for the building from Entity A that includes a guarantee of a portion of the building's residual value. The sum of the present value of the [lease payments](https://asc.understandingaccounting.org/glossary/l/#lease-payments "See paragraph 842-10-30-5 for what constitutes lease payments from the perspective of a lessee and a lessor.") and the residual value guarantee is less than substantially all the fair value of the building. 3. c There are no other interests in Entity A. 4. d The appropriate discount rate is assumed to be 5 percent. ##### [810-10-55-51](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-51) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:dd0c499f2c297d4c159fbbaf81500f3e48b4e66c7310efed45a15d200bd202c5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The estimated annual outcomes in the Example include both estimated cash flows and the estimated fair value of Entity A's assets to be distributed to variable interest holders in lieu of cash, exclusive of cash flows (or flows of other assets) to and from variable interests. The guarantee is a variable interest in Entity A because it is an interest in assets with a fair value that is more than half of the total fair value of Entity A's assets. Therefore, losses absorbed by the residual value guarantee are losses of Entity A and are included in the outcomes used to calculate expected losses. For calculation simplicity, the estimated outcomes, which include both cash flows and changes in the fair value of Entity A's net assets, and related probabilities are assumed to be the same each year of the five-year lease, and at the end of the lease, the carrying value of the building is assumed to be its fair value. ##### [810-10-55-52](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-52) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:d8cc9ec036cf73a70c8ac706e27783815a94eedaac8abb7c5e510db7b5845ebc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table shows the January 1, 2004, calculation of the expected outcome at the inception of the guarantee identified as a variable interest. The fair value of the expected outcome is assumed to be equal to the sum of the present values of probability-weighted estimated annual outcomes for the five-year lease term, excluding the effects of the residual value guarantee. Any variation in estimated outcomes, as compared to the expected outcome, represents a change to the value of Entity A's net assets exclusive of variable interests from the calculation-date value of those net assets. - ![](https://asc.understandingaccounting.org/asc-img/GUID-524F28B3-077C-4208-8ACA-2DE112BE7900-low.gif) (Amounts in Thousands) Estimated Annual Outcomes (a) Probability Expected Annual Outcome Fair Value of Expected Five-Year Outcomes (b) " $(10,000)" 5.0% $(500) " $(2,165)" " (5,000)" 10.0 (500) " (2,165)" - 20.0 - - " 10,000 " 50.0 " 5,000 " " 21,648 " " 50,000 " 15.0 " 7,500 " " 32,471 " 100.0% " $11,500 " " $49,789 " (a) "Estimated outcomes include both estimated cash flows, exclusive of cash flows (or flows of other assets) to and from variable interests, and the estimated fair value of Entity A's assets to be distributed to variable interest holders in lieu of cash." (b) "The fair value is assumed to be the sum of the present values of the expected outcomes for each year of the five-year period. Because of the simplifying assumption that the annual estimated outcomes and probabilities are the same for each year of the five-year period, the expected annual outcomes are treated as level annuities in the present value calculations to determine the fair value of the five-year expected outcomes." ##### [810-10-55-53](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-53) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:0183460158278c093eb8d49cc76b9e3996a4e3deffcf047e4137ca62e875de1f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table shows the calculation of expected losses as the negative variability from the fair value of the expected outcome. Note that the estimated annual outcomes of $0 and $10,000 contribute to expected losses although neither amount is negative. To the extent that an estimated outcome, although positive, is less than the expected outcome, the legal entity will lose value in relation to its value based on the expected outcome. The following table illustrates the calculation of this expected loss as the fair value of the probability-weighted negative variations from the expected outcome. Expected losses include all such negative variations. - ![](https://asc.understandingaccounting.org/asc-img/GUID-E004E53E-DCBB-495F-850E-ABC7377617E5-low.gif) (Amounts in Thousands) Estimated Annual Outcomes Present Value of Estimated Five-Year Outcomes (a) Fair Value of Expected Five-Year Outcomes (from the table in the preceding paragraph) Positive (Negative) Variation from Expected Value Probability Expected Losses Residual Returns " $(10,000)" " $(43,294)" " $49,789 " " $(93,083)" 5.00% " $(4,654)" " (5,000)" " (21,648)" " 49,789 " " (71,437)" 10.0 " (7,144)" - - " 49,789 " " (49,789)" 20.0 " (9,958)" " 10,000 " " 43,294 " " 49,789 " " (6,495)" 50.0 " (3,247)" " 50,000 " " 216,473 " " 49,789 " " 166,684 " 15.0 - " $25,003 " 100.00% " $(25,003)" " $25,003 " (a) "Because of the simplifying assumption that the annual estimated outcomes are the same for each year of the five-year period, the estimated annual outcomes are treated as level annuities in the calculation of the present value of estimated five-year outcomes." ##### [810-10-55-54](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-54) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:e3f830afefe3c42c64fd7a44724da5bd3ecd1ad931deb912c36041183b81547f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Negative variations can occur without having a net loss reflected in any of the estimated outcomes. Consequently, a profitable VIE will have expected losses, which must be considered in evaluating the sufficiency of equity-at-risk under paragraph [810-10-25-45(c)](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-45). ##### [810-10-55-55](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-55) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:2c047e46038e774272fc985584c807b24da3153a6cd94e199f8793027d081390 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Cases illustrate the application of the guidance in paragraphs [810-10-25-21 through 25-36](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-21) for determining the variability to be considered in the following situations: 1. a Financial VIE primarily financed by fixed-rate debt, holding investments in longer-term fixed-rate debt (Case A) 2. b Financial VIE primarily financed by fixed-rate debt, holding investments in longer-term fixed- and variable-rate debt (with a fixed-rate swap) (Case B) 3. c Financial VIE primarily financed by fixed-rate debt, holding investments in foreign-currency-denominated debt (with a currency swap) (Case C) 4. d Financial VIE primarily financed by floating-rate debt, holding investments in fixed-rate securities (Case D) 5. e Financial VIE financed by credit-linked notes holding highly rated floating-rate investments and a credit default swap (Case E) 6. f Retail-operating VIE (Case F) 7. g Lessor VIE (direct financing lease) with single lessee (operating lease) (Case G) 8. h VIE holding both a fixed-price forward contract to buy and a fixed-price forward contract to sell electricity (Case H). ##### [810-10-55-56](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-56) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:5510422de9e826ba5c1163e8809802d2d1086f55e21c0b930b04a1032fa061c6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Cases A-H share all of the following assumptions: 1. a All the entities are presumed to be VIEs. 2. b All variable interests are variable interests in the VIE (as a whole) rather than variable interests in specified assets of the VIE, based on the guidance in paragraphs [810-10-25-55 through 25-59](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-55) . 3. c A primary beneficiary has not been identified; however, the determination of the primary beneficiary should be made in accordance with the guidance in paragraphs [810-10-25-38A through 25-38G](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A) . ##### [810-10-55-57](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-57) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:3fd20ef0156e80caddc8028aa8a33e749a38dbdd7d0453ba7b5a5c8dd2bf91d3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In each Case, a two-step evaluation is performed as follows: 1. a Step 1: Analyze the nature of the risks in the VIE. 2. b Step 2: Determine the purpose(s) for which the VIE was created and determine the variability the VIE is designed to create and pass along to its interest holders. ##### [810-10-55-58](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-58) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:8e1a70f7569988b78d92d2ef3439b1ba087fb32bf1e148a44de4b33874d3014a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In the diagrams in each Case, creators are on the left and the variable interests are on the right; the instruments that could be considered either creators or absorbers of variability are in the bottom center. ##### [810-10-55-59](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-59) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:f22b5d92713551aec1ec5a4c2350a27086dd228b93664aab24edcd404a032340 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A VIE is created and financed with $96 of 3-year fixed-rate debt and $4 of equity from investors. The VIE uses the proceeds to purchase $100 of B- and BB-rated fixed-rate securities with contractual maturities ranging from 6 to 8 years. At the end of three years, all the investments will be sold with proceeds used, first, to pay the fixed-rate debt holders and, second, to pay the equity holders to the extent proceeds remain. The transaction was marketed to potential debt investors as an investment in a portfolio of below-investment-grade, fixed-rate investments with a longer weighted-average maturity than the liabilities and credit support from the equity tranche. The equity tranche was negotiated to absorb the first dollar risk of loss related to credit risk and interest rate risk and to receive any residual reward from a favorable change in interest rates or credit risk that affects the proceeds received on the sale of the investments in the portfolio. The following diagram illustrates this situation. - ![](https://asc.understandingaccounting.org/asc-img/GUID-A5DC9157-CB4D-446A-BF1D-0BE3003BA83C-low.gif) ##### [810-10-55-60](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-60) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:a2f13043705c2e67365ce7e8428f5bd3f020e2fe09359b7ad24e3699900c162f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The VIE is exposed to the following risks: 1. a Credit risk associated with a possible default by the issuers of the investments in the portfolio with respect to principal and interest payments 2. b Interest rate risk associated with interim changes in the fair value of the fixed-rate periodic interest payments received on the fixed-rate investment portfolio 3. c Interest rate risk associated with changes in cash received upon the sale of fixed-rate investments prior to maturity. ##### [810-10-55-61](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-61) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:0040b775137a2c9508ed2194d3f15c6f7c66503eee7893234a057eb84db473bd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following factors should be considered in the determination of the purpose(s) for which the VIE was created and in the determination of the variability the VIE is designed to create and pass along to its interest holders: 1. a The VIE was marketed to debt investors as a VIE that will be exposed to credit risk and changes in the fair value of the investments over the three-year life of the VIE due to changes in intermediate-term interest rates, with the equity tranche negotiated to absorb the first dollar risk of loss. It has been determined that substantive subordination is present with respect to these risks. 2. b The VIE was not designed to create and pass along to its interest holders interest rate risk associated with interim changes in fair value of the periodic fixed-rate interest payments received on the investments, based on the nature and terms of the debt and equity interests issued by the VIE. Based on this analysis, it can be determined that the VIE was designed to create and pass along the risks in (a) and (c) in the preceding paragraph to the debt and equity investors, which are the VIE's variable interest holders. ##### [810-10-55-62](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-62) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:7299574ec3676aed6d95cffcbcd9c166f9d89af0f5bdc7364a578ece8f29205f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A VIE is created and financed with $96 of 3-year fixed-rate debt and $4 of equity from investors. The VIE uses the proceeds to purchase $40 of B- and BB-rated fixed-rate securities with contractual maturities ranging from 6 to 8 years and $60 of B- and BB-rated floating-rate securities with contractual maturities ranging from 6 to 8 years (average maturity of 7 years). In addition, the VIE enters into a $60 notional 7-year pay floating and receive fixed interest rate swap with a bank. The swap economically converts the $60 of floating-rate investments to fixed-rate investments of the same average maturity. At the end of three years, all the investments will be sold, and the swap settled in cash, with the net proceeds used, first, to pay the fixed-rate debt holders and, second, to pay the equity holders to the extent proceeds remain. Net amounts payable to the swap counterparty periodically and at the end of three years (if required) take priority over payments made to the debt and equity investors. The transaction was marketed to potential debt investors as an investment in a portfolio of below-investment-grade fixed-rate and floating-rate investments (with the floating rate swapped for fixed) with a longer weighted-average maturity (including the effect of the swap) than the liabilities and credit support from the equity tranche. The equity tranche was negotiated to absorb the first dollar risk of loss related to credit risk and interest rate risk, and to receive any residual benefit from a favorable change in interest rates or credit risk that affects the proceeds received on the sale of the investments in the portfolio (including settlement of the swap prior to its contractual maturity). The following diagram illustrates this situation. - ![](https://asc.understandingaccounting.org/asc-img/GUID-E12A549E-FD43-4A50-A083-23CF036316B0-low.gif) ##### [810-10-55-63](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-63) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:99ce2aef0bba9717fafb4e1e3fb1c472b563a3190cc3a7c332ad8782fe391c22 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The VIE is exposed to the following risks: 1. a Credit risk associated with a possible default by the issuers of the investments in the portfolio with respect to principal or interest payments 2. b Credit risk associated with a possible default by the swap counterparty with respect to interest payments and the settlement amount, if any, due to the VIE at the end of three years 3. c Interest rate risk associated with changes in the fair value of the fixed-rate periodic interest payments received on the fixed-rate investment portfolio and on the fixed leg of the swap 4. d Interest rate risk associated with changes in the periodic interest payments received on the floating-rate investment portfolio 5. e Interest rate risk associated with changes in cash received upon the sale of fixed-rate investments before maturity 6. f Interest rate risk associated with the amount received or paid upon settlement of the swap at the end of three years. ##### [810-10-55-64](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-64) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:9379dd949e49240d7774c0bdbd64ddfbab314bdce003fde6426472068f3dbff2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following factors should be considered in the determination of the purpose(s) for which the VIE was created and in the determination of the variability the VIE is designed to create and pass along to its interest holders: 1. a The VIE was marketed to debt investors as a VIE that will be exposed to credit risk and changes in the fair value of a portfolio of intermediate-term fixed-rate investments (including floating-rate investments effectively converted to fixed-rate investments by the swap) over the three-year life of the VIE due to changes in intermediate-term interest rates, with the equity tranche negotiated to absorb the first dollar risk of loss. It has been determined that substantive subordination is present with respect to these risks. 2. b The swap counterparty is senior to the debt and equity investors, and the debt and equity investors understand that they are also exposed to the credit risk from possible default by the swap counterparty to the extent the swap is an asset to the VIE. 3. c The interest rate swap is strongly indicated as a creator of variability because its underlying is based on observable market rates and it is senior in priority to other interest holders. Although the notional amount of the swap relates to a majority of the assets of the VIE, changes in the cash flows or fair value of the swap are not expected to offset all, or essentially all, of the risk or return (or both) related to those investments because the fair value and cash flows of the VIE's investments are expected to be affected by risk factors other than changes in market interest rates (that is, credit risk). 4. d The VIE was not designed to create and pass along to its interest holders interest rate risk associated with changes in the fair value of the fixed-rate periodic interest payments received on the fixed-rate investment portfolio and on the fixed leg of the swap, based on the nature and terms of the other contracts the VIE has entered into. 5. e The VIE was not designed to create and pass along to its interest holders interest rate risk associated with changes in the periodic interest payments received on the floating-rate investment portfolio, based on the nature and terms of the debt and equity interests issued by the VIE. Based on this analysis, it can be determined that the VIE was designed to create and pass along the risks in (a), (b), (e), and (f) in the preceding paragraph to the debt and equity investors, which are the VIE's variable interest holders. The interest rate swap is considered a creator of the VIE's variability based on the design of the VIE and the guidance in paragraphs [810-10-25-35 through 25-36](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-35) . ##### [810-10-55-65](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-65) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:6fd4ec08571b1fc9ed661295f292d997db39fcd1720051b28ea62412bf8104c7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A VIE is created and financed with $96 of 5-year fixed-rate debt and $4 of equity from investors. The VIE uses the proceeds to purchase $100 of B- and BB-rated fixed-rate securities denominated in Japanese Yen (JPY) with contractual maturities of 5 years. In addition, the VIE enters into a $100 notional 5-year pay-fixed JPY and receive-fixed U.S. dollars (USD) cross-currency swap with a bank. The swap economically converts the fixed-rate JPY-denominated investments to fixed-rate USD investments, effectively offsetting the foreign exchange risk from both periodic interest payments and the amount due upon maturity for the JPY-denominated investments. At the end of five years, all the investments will mature and a final settlement will be paid or received by the VIE on the swap, with the net proceeds used, first, to pay the fixed-rate debt holders and, second, to pay the equity holders to the extent proceeds remain. The transaction was marketed to debt investors as an investment in a portfolio of below-investment-grade, JPY fixed-rate investments (with a third-party swap designed to offset the JPY exchange risk associated with interest and principal repayment on the investments) and credit support from the equity tranche. The equity tranche was negotiated to absorb the first dollar risk of loss. The following diagram illustrates this situation. - ![](https://asc.understandingaccounting.org/asc-img/GUID-F4FD4A1B-516B-47B6-B956-3BCE51EE94D8-low.gif) ##### [810-10-55-66](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-66) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:27206fc412de5735774b331941520f8ea9d447f54524585d0cc408a1317cfa89 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The VIE is exposed to the following risks: 1. a Credit risk associated with a possible default by the issuers of the investments in the portfolio with respect to principal and interest payments 2. b Credit risk associated with a possible default by the cross-currency swap counterparty with respect to interest payments and the settlement amount, if any, due to the VIE at the end of five years 3. c Interest rate risk associated with changes in the fair value of the fixed-rate periodic interest payments received on the fixed-rate investment portfolio and on the receive leg of the cross-currency swap 4. d Foreign currency exchange risk associated with the periodic interest payments received on the fixed-rate JPY-denominated investments and the final receipt of principal at maturity 5. e Foreign currency exchange risk associated with the periodic interest payments or receipts and the amount received or paid upon final settlement of the cross-currency swap at the end of five years. ##### [810-10-55-67](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-67) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:c9f54d1ca6794872a7cad3ebba172159489958d852b42d80294b7feff04f2ab0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following factors should be considered in the determination of the purpose(s) for which the VIE was created and in the determination of the variability the VIE is designed to create and pass along to its interest holders: 1. a The VIE was marketed to debt investors as a VIE that will be exposed to credit risk from possible default by the issuers of the JPY-denominated investments (principal and interest) as well as credit risk from possible default by the cross-currency swap counterparty, with the equity tranche negotiated to absorb the first dollar risk of loss related to these risks. It has been determined that substantive subordination is present with respect to these risks. 2. b The VIE was created to provide an investment vehicle for debt and equity investors to be exposed to the credit risk of entities whose securities are denominated in JPY. 3. c The swap counterparty is senior to the debt and equity investors, and the debt and equity investors are also exposed to the credit risk from possible default by the swap counterparty to the extent the swap is an asset to the VIE. 4. d The currency swap is strongly indicated as a creator of variability because its underlying is based on observable market rates and it is senior in priority to other interest holders. Although the notional amount of the swap relates to a majority of the assets of the VIE, changes in the cash flows or fair value of the swap are not expected to offset all, or essentially all, of the risk or return (or both) related to those investments because the fair value and cash flows of the VIE's investments are expected to be affected by risk factors other than changes in foreign currency exchange rates (that is, credit risk). 5. e The VIE was not designed to create and pass along to its interest holders interest rate risk associated with changes in the fair value of the fixed-rate periodic interest payments received on the fixed-rate investment portfolio and on the receive leg of the cross-currency swap, based on the nature and terms of the debt and equity contracts issued by the VIE. Based on this analysis, it can be determined that the VIE was designed to create the risks in (a), (b), (d), and (e) in the preceding paragraph, and pass along the risks in (a) and (b) in the preceding paragraph to the debt and equity investors, which are the VIE's variable interest holders. The cross-currency swap is considered a creator of the VIE's variability based on the design of the VIE and the guidance in paragraphs [810-10-25-35 through 25-36](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-35) . ##### [810-10-55-68](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-68) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:960922cca6ee503306c6cdfebc25b5a929a9e476c903f013311faa8d4271ede6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A VIE is created and financed with $90 of 3-year floating-rate debt and $10 of equity from investors. The VIE uses the proceeds to purchase $100 of AAA-rated fixed-rate securities, which mature in 3 years. The fixed periodic interest payments received on the investments are used to pay the floating-rate interest to the debt holders with the remainder used to provide a return to the equity investor. At the end of three years, all the investments will mature with proceeds used, first, to pay the floating-rate debt holders and, second, to pay the equity holder to the extent proceeds remain. The VIE is not actively managed. The transaction was marketed to potential debt investors as an investment in a portfolio of high-quality fixed-rate investments with the equity tranche negotiated to provide support in the event of a credit default on the investments or in the event the fixed-rate return on the investments is not sufficient to pay the floating-rate coupon on the debt. The equity tranche was negotiated to absorb the first dollar risk of loss. The following diagram illustrates this situation. - ![](https://asc.understandingaccounting.org/asc-img/GUID-4C5CCF2E-C712-49A3-88C7-0BEEC814D32A-low.gif) ##### [810-10-55-69](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-69) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:ef99bb1ac431c4d6620c7307106179fabf5e027c05662abf322bf97f4f1e1f68 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The VIE is exposed to the following risks: 1. a Credit risk associated with a possible default by the issuers of the investments in the portfolio with respect to principal or interest payments 2. b Interest rate risk associated with changes in the fair value of the fixed-rate periodic interest payments received on the fixed-rate investment portfolio. ##### [810-10-55-70](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-70) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:ff9eafdd3a8f7a4be5e1b84274e258b204558ae58c090335e2d4cc55e5638f69 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following factors should be considered in the determination of the purpose(s) for which the VIE was created and in the determination of the variability the VIE is designed to create and pass along to its interest holders: 1. a The VIE was marketed to debt investors as an entity that will be exposed to changes in the fair value of periodic interest payments received on the investments due to changes in interest rates and credit risk associated with the investment portfolio, with the equity tranche negotiated to absorb the first dollar risk of loss. It has been determined that substantive subordination is present with respect to these risks. 2. b The equity investor has implicitly issued a $90 notional interest rate swap to the VIE in which that investor agrees to pay the VIE a floating rate and receive a fixed rate. However, the maximum amount payable to the VIE is limited to the equity investment. The debt holders will absorb the remaining variability caused by changes in interest rates. 3. c The VIE was created to provide an investment vehicle for debt and equity investors to be exposed to the credit risk and interest rate risk associated with a mismatch between the assets (fixed-rate) and liabilities (floating-rate). 4. d The VIE was designed to create and pass along to its interest holders interest rate risk associated with changes in fair value of the periodic fixed-rate interest payments received on the investments, based on the nature and terms of debt and equity interests issued by the VIE. Based on this analysis, it can be determined that the VIE was designed to create and pass along the risks in (a) and (b) in the preceding paragraph to the debt and equity investors, which are the VIE's variable interest holders. ##### [810-10-55-71](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-71) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:7c0881db09430d7a47945c1eeecb2a3ed60677c4aaaec129c8e9b5e7acfabe58 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Bank A holds a $100 investment in bonds issued by ABC Entity and enters into a credit default swap with a newly established VIE that has no equity investors and no decision-making ability. The VIE issues $100 of credit-linked notes to investors. The credit-linked notes pay a return equal to the London Interbank Offered Rate (LIBOR) + 90 basis points and mature in 5 years. The proceeds from the issuance of the credit-linked notes are invested in floating-rate AAA-rated investments. The terms of the credit default swap require Bank A to pay quarterly a swap premium of 100 basis points to the VIE. If a credit event occurs, as defined in the agreement, the VIE pays Bank A the notional amount of $100, and receives from Bank A the bonds issued by ABC Entity. The VIE then settles its five-year notes by delivering to the note holder the defaulted ABC Entity bonds or by selling the bonds and delivering cash. ##### [810-10-55-72](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-72) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:f8d25d51f4f74db7b001d51eadd2af7881244be260804e2746bcb3d05cd0784b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The coupon on the floating-rate AAA-rated investments, plus the premium received on the credit default swap, will fund the coupon payment on the credit-linked notes. The VIE was marketed to potential investors as a floating-rate investment with an enhanced yield due to the assumption of credit risk of the referenced entity (in this case, ABC Entity). The following diagram illustrates this situation. - ![](https://asc.understandingaccounting.org/asc-img/GUID-F5BA6A1A-F4E2-415A-992E-AB31DE3D4F05-low.gif) ##### [810-10-55-73](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-73) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:b6d139ca216fc003ee1c1428904a4b603dd388b4a7d02ff50bbce36c913686b5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The VIE is exposed to the following risks: 1. a Credit risk associated with ABC Entity 2. b Credit risk associated with the AAA-rated investments 3. c Credit risk associated with possible default by Bank A with respect to premium payments made to the VIE 4. d Interest rate risk associated with changes in the cash flows from the interest payments received on the floating-rate investments. ##### [810-10-55-74](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-74) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:754bc531191921eadd8514779c7bb9ae79e479f8d751e82cf869b80c0d44e627 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following factors should be considered in the determination of the purpose(s) for which the VIE was created and in the determination of the variability the VIE is designed to create and pass along to its interest holders: 1. a The VIE was marketed to the note holders as a VIE that will be exposed to credit risk associated with ABC Entity through the credit default swap, with a small amount of credit risk from Bank A, because the notes, if there is no credit event that triggers settlement of the credit default swap, are fully collateralized by AAA-rated investments. 2. b The VIE has sold credit protection on ABC Entity to Bank A and has purchased credit protection on ABC Entity from the note holders, who are expected to receive an enhanced return over the AAA floating rate investment for assuming the credit risk of ABC Entity and (to a lesser extent) the credit risk of Bank A. 3. c The written credit default swap is strongly indicated as a creator of variability because its underlying is based on observable market variables and it is senior in priority to other interest holders. 4. d The VIE was not designed to create and pass along to its interest holders interest rate risk associated with changes in cash flows from the periodic interest payments received on the floating-rate investments, based on the nature and terms of the credit-linked notes issued by the VIE. Based on this analysis, it can be determined that the VIE was designed to create and pass along the risks in (a), (b), and (c) in the preceding paragraph to the note holders, which are the VIE's variable interest holders. The written credit default swap is considered a creator of the VIE's variability based on the design of the VIE and considering the guidance in paragraphs [810-10-25-35 through 25-36](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-35) . ##### [810-10-55-75](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-75) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:941cc0e3b5a35a78f291f8319317f157fff9bae38a0d44b8d23de6d9a7357e01 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A VIE is created by a furniture manufacturer and a strategic investor to sell wood furniture to retail customers in a particular geographic region of the country that has no viable distribution channel. The VIE is established with $100 of equity contributed by the furniture manufacturer and $3 million of 10-year fixed-rate debt financed by the strategic investor. Interest is paid to the fixed-rate debt holder from operations before funds are available to the equity holder. The furniture manufacturer has guaranteed the fixed-rate debt to the strategic investor. The following diagram illustrates this situation. - ![](https://asc.understandingaccounting.org/asc-img/GUID-DFD1149C-1089-4768-8589-A373E50D0B8A-low.gif) ##### [810-10-55-76](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-76) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:540a3177dd347d956144e38c8ebfec77a5ef609a6c54874e5e9d5f48201c4e2a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The VIE is exposed to the following risks (collectively, operating risks): 1. a Sales volume risk 2. b Retail furniture price risk 3. c Inventory price risk 4. d Other operating cost risk. ##### [810-10-55-77](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-77) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:739b80a7d893fdde6c5fc95f398b757676afb46182b0c52cdd6177a0f2540df2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following factors should be considered in the determination of the purpose(s) for which the VIE was created and in the determination of the variability the VIE is designed to create and pass along to its interest holders: 1. a The VIE was created to enable the furniture manufacturer to extend its existing business line into a particular geographic region that lacked a viable distribution channel. 2. b The furniture manufacturer is absorbing variability from the operations of the VIE through its guarantee of the debt. 3. c The debt interest was negotiated as a fixed-rate investment in a retail operating VIE, supported by the furniture manufacturer. Based on this analysis, it can be determined that the VIE was designed to create and pass along the risks in (a), (b), (c), and (d) in the preceding paragraph to the debt and equity investors (the strategic investor and furniture manufacturer, respectively), which are the VIE's variable interest holders. The furniture manufacturer also holds a variable interest with respect to its guarantee of the debt of the VIE because that contract, by design, absorbs a portion of the VIE's variability due to operating risks. ##### [810-10-55-78](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-78) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:286966af4cf67038456d08ce04705abd6e80479fe6a05673837ac9f97548fccf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A VIE is created and financed with $950 of 5-year fixed-rate debt and $50 of equity. The VIE uses the proceeds from the issuance to purchase an [underlying asset](https://asc.understandingaccounting.org/glossary/u/#underlying-asset "An asset that is the subject of a lease for which a right to use that asset has been conveyed to a lessee. The underlying asset could be a physically distinct portion of a single asset.") to be leased to a [lessee](https://asc.understandingaccounting.org/glossary/l/#lessee "An entity that enters into a contract to obtain the right to use an underlying asset for a period of time in exchange for consideration.") with a AA credit rating. The equity provides protection (up to $50) to the debt related to both credit risk and interest rate risk because the debt is paid before any cash flows are available to the equity investors. The [lease](https://asc.understandingaccounting.org/glossary/l/#lease "A contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.") has a five-year term and is classified as a [direct financing lease](https://asc.understandingaccounting.org/glossary/d/#direct-financing-lease "From the perspective of a lessor, a lease that meets none of the criteria in paragraph 842-10-25-2 but meets the criteria in paragraph 842-10-25-3(b)and is not an operating lease in accordance with paragraph 842-10-25-3A.") by the [lessor](https://asc.understandingaccounting.org/glossary/l/#lessor "An entity that enters into a contract to provide the right to use an underlying asset for a period of time in exchange for consideration.") and as an [operating lease](https://asc.understandingaccounting.org/glossary/o/#operating-lease "From the perspective of a lessee, any lease other than a finance lease. From the perspective of a lessor, any lease other than a sales-type lease or a direct financing lease.") by the lessee. The lessee is required to provide a first-loss residual value guarantee for the expected future value of the underlying asset at the end of five years, and it has a fixed-price purchase option to acquire the underlying asset for the same amount. A third-party residual value guarantor provides a very small additional residual value guarantee to the lessor. The governing documents for the VIE do not permit the VIE to buy additional assets or sell existing assets during the five-year holding period. The VIE was formed so that the lessee will have rights to occupy and use the underlying asset under an operating lease and retain substantially all of the risks and rewards from appreciation or depreciation in value of the underlying asset. The transaction was marketed to potential investors as an investment in a portfolio of AA-rated assets collateralized by an underlying asset that would provide a fixed-rate return to debt holders equivalent to AA-rated assets. The return to equity investors is expected to be slightly greater than the return provided to the debt investors because the equity is subordinated with respect to the obligation of the lessee to the VIE. - ![](https://asc.understandingaccounting.org/asc-img/GUID-CF024729-CD77-4F90-A6B0-B6724BE7E3BD-low.gif) ##### [810-10-55-79](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-79) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:78ed7d846eb61d9c0ba5cac83ff5ef038dc4d718f8a6a5bb0ce6cd8fb88849db Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The VIE is exposed to the following risks: 1. a Price risk with respect to changes in fair value of the underlying asset 2. b Credit risk associated with possible default by the lessee of the underlying asset with respect to the lease payments 3. c Interest rate risk associated with changes in the fair value of the future lease payments. ##### [810-10-55-80](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-80) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:cd0fc72d66d88b2d2379b6e1d75c6fb84a0432ca6cbc60ef15d73722289a75e4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following factors should be considered in the determination of the purpose(s) for which the VIE was created and in the determination of the variability the VIE is designed to create and pass along to its interest holders: 1. a Although the lease payments are fixed, the VIE was not designed to be exposed to interim changes in fair value of those lease payments due to interest rate risk because the VIE is not expected to sell the underlying asset before maturity of the fixed-rate debt. 2. b The primary purpose for which the VIE was created was to provide the lessee with use of the underlying asset for five years with substantially all of the rights and obligations of ownership. 3. c The residual value guarantee effectively transfers substantially all of the risk associated with the underlying asset (that is, declines in value) to the lessee. Therefore, the variability that is transferred to that interest holder is strongly indicated as variability that the VIE is designed to create and pass along to its interest holders. 4. d The fixed-price purchase option effectively transfers substantially all of the rewards from the underlying asset (that is, increases in value) to the lessee. 5. e The VIE is designed to be exposed to the risks associated with a cumulative change in fair value of the underlying asset at the end of five years as well as credit risk from possible default by the lessee with regard to lease payments. 6. f The VIE was marketed to potential investors as an investment in a portfolio of AA-rated assets collateralized by an underlying asset that would provide a fixed-rate return to debt holders equivalent to AA-rated assets. 7. g The role of the residual value guarantee and fixed-price purchase option in the design of the VIE, regardless of their legal form or accounting classification, dictates whether those interests shall be treated as creating risk for the VIE or absorbing risk from the VIE. Therefore, price risk with respect to changes in fair value of the underlying asset is a relevant risk for the VIE, even though the lessor VIE records a net investment in the direct financing lease, rather than the underlying asset itself, on its balance sheet for accounting purposes. Based on this analysis, it can be determined that the VIE was designed to create and pass along the risk in (a) in paragraph [810-10-55-79](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-79) to the third-party guarantor and the lessee (with respect to the residual value guarantee and fixed-price purchase option) and the risk in (b) in paragraph 810-10-55-79 to the note and equity holders, all of which are the VIE's variable interest holders. ##### [810-10-55-81](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-81) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:f4b0ee087023f93931dc6df56ddac3ef491f764b8322bf1b63ac200609349e31 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A financially distressed electricity producer wishes to monetize some of its in-the-money forward positions. One such contract is a physically settled forward contract to sell electricity to Party A at a fixed price one year in the future. A VIE is created and financed with $100 of 1-year fixed-rate debt from investors for the purpose of monetizing the value of the forward contract to sell for the electricity producer. The VIE uses the proceeds from issuance to purchase the physically settled forward contract to sell (from the VIE's perspective) electricity to Party A at a fixed price one year in the future. This contract is in-the-money by $100. After the electricity producer has received its $100, it has no further involvement with the VIE. The VIE enters into a separate at-market forward contract to buy (from the VIE's perspective) electricity at a lower fixed price from Party B on the same future date. Both forward contracts will be physically settled, and all other critical terms (except the fixed settlement price) of the two forward contracts are the same. Both forward contracts have rights senior to those of the investors and are derivatives whose underlying is a market observable price. The VIE is not actively managed. The debt was marketed to the investors as a fixed-rate one-year investment with an enhanced yield due to risk of possible default by either Party A or Party B with respect to their forward contracts with the VIE. The following diagram illustrates this situation. - ![](https://asc.understandingaccounting.org/asc-img/GUID-5995C71E-D218-4173-B568-BA3C2F1F1FEF-low.gif) ##### [810-10-55-82](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-82) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:4fa1b32ef0fba4a4cc6460d605afaaef1134c5fb09d63dc27a6ff9956b3dc898 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The VIE is exposed to the following risks: 1. a Electricity price risk, which affects the fair values of the fixed-price forward purchase contract and the fixed-price forward sales contract 2. b Credit risk associated with possible default by the counterparty to the forward purchase contract 3. c Credit risk associated with possible default by the counterparty to the forward sales contract. ##### [810-10-55-83](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-83) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:67fe7574553300bea81d7c4438c57e165538c2d1f8577b6fd7d908b3ea223c8a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following factors should be considered in the determination of the purpose(s) for which the VIE was created and in the determination of the variability the VIE is designed to create and pass along to its interest holders: 1. a The VIE was designed to hold offsetting positions with respect to electricity price risk through a forward purchase contract and a forward sales contract with terms that are the same (except for fixed settlement price). 2. b The debt was marketed to the investors as a fixed-rate one-year investment with an enhanced yield due to risk of possible default by either Party A or Party B with respect to their forward contracts with the VIE. 3. c To the extent electricity prices rise and the forward purchase contract (with Party B) increases in value (from the VIE's perspective), the debt investors will be exposed to credit risk to the extent that Party B defaults on its obligation. 4. d To the extent electricity prices drop and the forward sales contract increases in value (from the VIE's perspective), the debt investors will be exposed to credit risk to the extent that Party A defaults on its obligation. 5. e The forward to buy electricity at a fixed price is strongly indicated as a creator of variability because its underlying is based on observable market prices and it is senior in priority to the debt holders. 6. f The forward to sell electricity at a fixed price is strongly indicated as a creator of variability because its underlying is based on observable market prices and is senior in priority to the debt holders. 7. g Changes in fair value of each forward contract are expected to offset all, or essentially all, of the risk and return related to the other forward contract, so a further analysis of the design of the VIE is necessary in order to conclude whether each forward contract is a creator of variability or a variable interest. ##### [810-10-55-84](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-84) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:22b58e3544d576f35c80d15ea3e935e6f6d01481923e6c6622c8923afea52d05 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A further analysis of the design of the VIE is necessary to conclude whether each fixed-price forward contract is a creator of variability or a variable interest because changes in the fair value of each contract are expected to offset all, or essentially all, of the risk and return related to the other contract. That analysis should consider the following factors: 1. a The debt interests in this VIE were marketed on behalf of the electricity producer as fixed-rate debt exposed to the credit risk of the counterparties to the forward agreements. 2. b The counterparties to the forward agreements did not participate significantly in the design of the VIE. ##### [810-10-55-85](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-85) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:6cf99e1df5909d4521367aec37ab80bda60c434a0bc2c200c59c6bff8f991cb4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In these circumstances, because they meet the characteristics described in paragraph [810-10-25-35(a) through (b)](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-35) and based on the further analysis of the design of the VIE, the two forward contracts are creators of the VIE's variability. Based on this analysis, it can be determined that the VIE was designed to create and pass along the risks in paragraph [810-10-55-82(a) through (c)](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-82) to the debt investors, which are the VIE's variable interest holders. ##### [810-10-55-86](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-86) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:4c782ead59da525bd55ee994a2c9ba61dd56651bfc4ece44d76aee757e61e4b0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If, instead of executing the transaction described in this Case, the electricity producer sold the fixed-price forward sales contract for $100 to an entity that physically owned a power plant and produced electricity, an analysis of the design of that entity would be required, which would involve developing a complete understanding of the purpose for which that entity was created. In this case, the electricity producer also has no further involvement with the entity after receiving its $100. Provided the fixed-priced forward contract to sell is senior in priority to other interest holders, that contract would be strongly indicated as a creator of variability because its underlying is based on observable market rates. In addition, changes in the cash flows or fair value of the fixed-price forward contract typically would not be expected to offset all, or essentially all, of the risk or return (or both) related to the power plant because the risk or return (or both) of the power plant would be affected by factors other than changes in electricity prices (for example, operating costs). ##### [810-10-55-87](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-87) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:9a21521fb7380ffed37eebfbd43249233f0f5ce4d8d59dd5e9f5feb444163d74 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2014-07](https://asc.understandingaccounting.org/updates/asu-2014-07/). ##### [810-10-55-88](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-88) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:59a352245dba1ba2d3d6f1f1cf73b0b12d23df9bf109f588d57e058168410a1f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2014-07](https://asc.understandingaccounting.org/updates/asu-2014-07/). ##### [810-10-55-89](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-89) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:b631ae37c0a2513347f8d6f7203c6ecaf50f255a58387210eaa487220a5c4c6d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2014-07](https://asc.understandingaccounting.org/updates/asu-2014-07/). ##### [810-10-55-90](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-90) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:618c161d1da911d550357dc3238068824ef2caa8d4e3ea5a0a897e00bc2b8cbe Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph moved to [810-10-55-206](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-206). ##### [810-10-55-90A](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-90A) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:3a0021de19ba8b20ca388563b782813e0fa437940e64c5dea48e51280a490761 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph moved to [810-10-55-207](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-207). ##### [810-10-55-91](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-91) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:8a4fa21f02a0e0e4278c19f504229623e11beaaf58a8c5eb95c464b31000ccef Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph moved to [810-10-55-208](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-208). ##### [810-10-55-92](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-92) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:42f51c967a871e0a4c0610a3732920f5e0471b6b22ea8591932c174895ff598f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph moved to [810-10-55-209](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-209). ##### [810-10-55-93](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-93) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:67325ce1a9e5e975625ac03d5cc8620e3c66e2377492d7e1905f8241c0654311 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following cases are provided solely to illustrate the application of the guidance in paragraphs [810-10-25-38A through 25-38J](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A) related to the identification of a primary beneficiary: 1. a Commercial mortgage-backed securitization (Case A) 2. b Asset-backed collateralized debt obligation (Case B) 3. c Structured investment vehicle (Case C) 4. d Commercial paper conduit (Case D) 5. e Guaranteed mortgage-backed securitization (Case E) 6. f Residential mortgage-backed securitization (Case F) 7. g Lease entity (Case G) 8. h Collaboration—Joint venture arrangement (Case H) 9. i Furniture manufacturing entity (Case I) 10. j Investment fund 1—Annual and performance-based fees and additional interests (Case J) 11. k Investment fund 2—Annual and performance-based fees and no additional interests (Case K) 12. l eCommerce Entity (Case L). ##### [810-10-55-94](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-94) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:4574482cf0551967a1700ba2d34bc6f58ac466dd89bf9b6345abc5a42aa19998 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The identification of a primary beneficiary, if any, in Cases A-L is based solely on the specific facts and circumstances presented. These Cases are hypothetical and are not meant to represent actual transactions in the marketplace. Although certain aspects of the Cases may be present in actual fact patterns, relevant facts and circumstances of a specific fact pattern or structure would need to be evaluated to reach an accounting conclusion. The Cases share the following assumptions: 1. a The legal entities in Cases A-I and Case L are presumed to be VIEs.These presumptions should be understood as fact and not as conclusions based on the other facts and circumstances in each case. Case J provides an explanation as to why the legal entity is a VIE. Case K does not indicate whether the legal entity is a VIE because the decision maker does not have a variable interest in the legal entity. 2. b All variable interests are presumed to be variable interests in the VIE as a whole, rather than variable interests in specified assets of the VIE, on the basis of the guidance in paragraphs [810-10-25-55 through 25-59](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-55) . ##### [810-10-55-95](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-95) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:3ea4c6a8b6eb70279045f22a6b8fe7026c8949a0639020c3f3b7a976d3e6f0da Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In some Cases, certain fees are described as representing, or not representing, a variable interest on the basis of paragraphs [810-10-55-37 through 55-38](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-37) . However, the Cases were not meant to illustrate the application of the guidance in those paragraphs, and additional facts would be necessary to determine which condition(s) resulted in the fee representing a variable interest. Specifically, certain Cases state whether certain fees are commensurate with the level of effort required to provide the related services and whether they are part of a service arrangement that includes only terms, conditions, or amounts that are customarily present in similar arrangements negotiated at arm's length. Those presumptions should be understood as fact for purposes of reading each related Case and not as conclusions based on the other facts and circumstances described in each case. Finally, determining the primary beneficiary in accordance with the guidance in the Variable Interest Entities Subsections requires judgment and is on the basis of individual facts and circumstances of the VIE and the reporting entity with the variable interest or interests. ##### [810-10-55-96](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-96) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:78380613c0577c172da7cbba7e028786df2498830b488656a481c61995a4aad0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A VIE is created and financed with $94 of investment grade 7-year fixed-rate bonds (issued in 3 tranches) and $6 of equity. All of the bonds are held by third-party investors. The equity is held by a third party, who is also the special servicer. The equity tranche was designed to absorb the first dollar risk of loss and to receive any residual return from the VIE. The VIE uses the proceeds to purchase $100 of BB-rated fixed-rate commercial mortgage loans with contractual maturities of 7 years from a transferor. The commercial mortgage loans contain provisions that require each borrower to pay the full scheduled interest and principal if the loan is extinguished prior to maturity. The transaction was marketed to potential bondholders as an investment in a portfolio of commercial mortgage loans with exposure to the credit risk associated with the possible default by the borrowers. ##### [810-10-55-97](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-97) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:7ff17283d106f3adf5c94bd1bb426138225a42a122126f0d812e1b50e6edc6cb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Each month, interest received from all of the pooled loans is paid to the investors in the fixed-rate bonds, in order of seniority, until all accrued interest on those bonds is paid. The same distribution occurs when principal payments are received. ##### [810-10-55-98](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-98) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:3e9fc59947076639cf95320e6666aaf7d563d35e90a6a05a2d49d9505553cf2e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If there is a shortfall in contractual payments from the borrowers or if the loan collateral is liquidated and does not generate sufficient proceeds to meet payments on all bond classes, the equity tranche and then the most subordinate bond class will incur losses, with further losses impacting more senior bond classes in reverse order of priority. ##### [810-10-55-99](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-99) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:bf9569a281e0845418ba1af4c2c02fe3bdfcd111052c69c9f22ba05fb77d2125 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The transferor retains the primary servicing responsibilities. The primary servicing activities performed are administrative in nature and include remittance of payments on the loans, administration of escrow accounts, and collections of insurance claims. Upon delinquency or default by the borrower, the responsibility for administration of the loan is transferred from the transferor as the primary servicer to the special servicer. Furthermore, the special servicer, as the equity holder, has the approval rights for budgets, leases, and property managers of foreclosed properties. ##### [810-10-55-100](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-100) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:c5c440531bdd20100ee4030af59c9d504b3d556bc083bb356c25a7baf670dcca Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The special servicer is involved in the creation of the VIE and required at the creation date that certain loans, which it deemed to be of high risk, be removed from the initial pool of loans that were going to be purchased by the VIE from the transferor. The special servicer also reviewed the VIE's governing documents to ensure that the special servicer would be allowed to act quickly and effectively in situations in which a loan becomes delinquent. The special servicer concluded the VIE's governing documents allowed the special servicer to adequately monitor and direct the performance of the underlying loans. ##### [810-10-55-101](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-101) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:712c63a60f87c43829bac38e8b183c05f25bc29ce99fbec206cb04d6f7cea939 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For its services as primary servicer, the transferor earns a fixed fee, calculated as a percentage of the unpaid principal balance on the underlying loans. The special servicer also earns a fixed fee, calculated as a percentage of the unpaid principal balance on the underlying loans. The fees paid to the primary and special servicer are both of the following: 1. a Compensation for services provided and commensurate with the level of effort required to provide the services 2. b Part of a service arrangement that includes only terms, conditions, or amounts that are customarily present in arrangements for similar services negotiated at arm's length. No party has the ability to remove the primary servicer or the special servicer. ##### [810-10-55-102](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-102) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:cc1dab8365d740390e19da4bd1ff1e585662695f5d1cadacc18b974828dbf27a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To evaluate the facts and circumstances and determine which reporting entity, if any, is the primary beneficiary of a VIE, paragraph [810-10-25-38A](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A) requires that a reporting entity determine the purpose and design of the VIE, including the risks that the VIE was designed to create and pass through to its variable interest holders. In making this assessment, the variable interest holders of the VIE determined the following: 1. a The primary purposes for which the VIE was created were to provide liquidity to the transferor to originate additional loans and to provide investors with the ability to invest in a pool of commercial mortgage loans. 2. b The VIE was marketed to debt investors as a VIE that would be exposed to the credit risk associated with the possible default by the borrowers with respect to principal and interest payments, with the equity tranche designed to absorb the first dollar risk of loss. Additionally, the marketing of the transaction indicated that such risks would be mitigated by subordination of the equity tranche. 3. c The VIE is not exposed to prepayment risk because the commercial mortgage loans contain provisions that require the borrower to pay the full scheduled interest and principal if the loan is extinguished prior to maturity. ##### [810-10-55-103](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-103) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:904b4168cfbf26e46a95442a4a9c8fcfaf5407ac65f962fcc9b551cb61c52c9c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The special servicer and the bondholders are the variable interest holders in the VIE. The fees paid to the transferor do not represent a variable interest on the basis of a consideration of the conditions in paragraphs [810-10-55-37 through 55-38](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-37) . The fees paid to the special servicer represent a variable interest on the basis of a consideration of the conditions in those paragraphs, specifically paragraph [810-10-55-37(c)](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-37), because of the special servicer holding the equity tranche. If the special servicer was only receiving fees and did not hold the equity tranche and if its related parties did not hold any variable interests in the VIE, then the fees would not be a variable interest. ##### [810-10-55-104](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-104) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:f4ec5f54cf5bfaf579e30659ebc3654f63b7e10874c7f3dc4e390c8180a51682 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [810-10-25-38B](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38B) requires that a reporting entity identify which activities most significantly impact the VIE's economic performance and determine whether it has the power to direct those activities. The economic performance of the VIE is most significantly impacted by the performance of its underlying assets. Thus, the activities that most significantly impact the VIE's economic performance are the activities that most significantly impact the performance of the underlying assets. The special servicer has the ability to manage the VIE's assets that are delinquent or in default to improve the economic performance of the VIE. Additionally, the special servicer, as the equity holder, can approve budgets, leases, and property managers on foreclosed property. The special servicing activities are performed only upon delinquency or default of the underlying assets. However, a reporting entity's ability to direct the activities of a VIE when circumstances arise or events happen constitutes power if that ability relates to the activities that most significantly impact the economic performance of the VIE. A reporting entity does not have to exercise its power in order to have power to direct the activities of a VIE. The special servicer's involvement in the design of the VIE does not, in isolation, result in the special servicer being the primary beneficiary of the VIE. However, in this situation, that involvement indicated that the special servicer had the opportunity and the incentive to establish arrangements that result in the special servicer being the variable interest holder with the power to direct the activities that most significantly impact the VIE's economic performance. ##### [810-10-55-105](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-105) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:d114ac417c718f9a0fe8800394a50973eb6db42de801169fd7fbe50a95afd7dd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The bondholders of the VIE have no voting rights and no other rights that provide them with the power to direct the activities that most significantly impact the VIE's economic performance. ##### [810-10-55-106](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-106) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:490e9612ce55e04cae3e34838fe896c978c989f4da1c7475fbe4be4afbc458e7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The activities that the primary servicer has the power to direct are administrative in nature and do not most significantly impact the VIE's economic performance. In addition, the primary servicer, and its related parties, do not hold a variable interest in the VIE. Thus, the primary servicer cannot be the primary beneficiary of the VIE. ##### [810-10-55-107](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-107) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:6f29310d5214b4491608b8244098f9a20af3ea81551b027a099c3f2f49e2d9f2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a reporting entity has the power to direct the activities of a VIE that most significantly impact the VIE's economic performance, then under the requirements of paragraph [810-10-25-38A](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A), that reporting entity also is required to determine whether it has the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. ##### [810-10-55-108](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-108) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:3d1f1026d6fb2ed15c0da5c88098946f92fbf8452087c077b92b42e9dd891b50 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The special servicer, for its servicing activities, receives a fixed fee that provides it with the right to receive benefits of the VIE. The fees paid to the special servicer are both of the following: 1. a Compensation for services provided and commensurate with the level of effort required to provide the services 2. b Part of a service arrangement that includes only terms, conditions, or amounts that are customarily present in arrangements for similar services negotiated at arm's length. Therefore, the fees meet the criteria in paragraph [810-10-25-38H](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38H), and they should not be considered for purposes of evaluating the characteristic in paragraph [810-10-25-38A(b)](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A). The special servicer, as the equity tranche holder, has the obligation to absorb losses and the right to receive benefits, either of which could potentially be significant to the VIE. As equity tranche holder, the special servicer is the most subordinate tranche and therefore absorbs the first dollar risk of loss and has the right to receive benefits, including the VIE's actual residual returns, if any. ##### [810-10-55-109](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-109) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:7de1b46a4ba84da9f31b7c5bcccc87b6897ad03bcb51bf4c3d5c1047221329cf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On the basis of the specific facts and circumstances presented in this Case and the analysis performed, the special servicer would be deemed to be the primary beneficiary of the VIE because: 1. a It is the variable interest holder with the power to direct the activities of the VIE that most significantly impact the VIE's economic performance. 2. b As the equity tranche holder, it has the obligation to absorb losses of the VIE and the right to receive benefits from the VIE, either of which could potentially be significant to the VIE. ##### [810-10-55-110](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-110) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:b2a517110f5a456eb3b52caa347f123b952ce1a6ed517552b8c7d1183eaca426 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A VIE is created and financed with $90 of AAA-rated fixed-rate debt securities, $6 of BB-rated fixed-rate debt securities, and $4 of equity. All debt securities issued by the VIE are held by third-party investors. The equity tranche is held 35 percent by the manager of the VIE and 65 percent by a third-party investor. The VIE uses the proceeds to purchase a portfolio of asset-backed securities with varying tenors and interest rates. ##### [810-10-55-111](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-111) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:f32386474f910cac30224a24d06a724d92fbe874c2497e7fd7ff84403eb902be Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The transaction was marketed to potential debt investors as an investment in a portfolio of asset-backed securities with exposure to the credit risk associated with the possible default by the issuers of the asset-backed securities in the portfolio and to the interest rate risk associated with the management of the portfolio. The equity tranche was designed to absorb the first dollar risk of loss related to credit risk and interest rate risk and to receive any residual returns from a favorable change in interest rates or credit risk that affects the proceeds received on the sale of investments in the portfolio. ##### [810-10-55-112](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-112) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:b3a6bd1d1b8b91df7ab4add33033a001a5a0d0c59e5119fcd3725cc03007fe1e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The assets of the VIE are managed within the parameters established by the underlying trust documents. The parameters provide the manager with the latitude to manage the VIE's assets while maintaining an average portfolio rating of single B-plus or higher. If the average rating of the portfolio declines, the VIE's governing documents require that the manager's discretion in managing the portfolio be curtailed. ##### [810-10-55-113](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-113) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:cbc384bbdd71bc10c12509f34fbe3b93afc89efc30ba5024b298d6e7a17c88ff Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For its services, the manager earns a base, fixed fee, and a performance fee in which it receives a portion of the VIE's profit above a targeted return. The fees paid to the manager are both of the following: 1. a Compensation for services provided and commensurate with the level of effort required to provide the services 2. b Part of a service arrangement that includes only terms, conditions, or amounts that are customarily present in arrangements for similar services negotiated at arm's length. The manager can be removed, [without cause](https://asc.understandingaccounting.org/glossary/w/#without-cause "Without cause means that no reason need be given for the dissolution (liquidation) of the limited partnership or removal of the general partners.") (as distinguished from [with cause](https://asc.understandingaccounting.org/glossary/w/#with-cause "With cause generally restricts the limited partners' ability to dissolve (liquidate) the limited partnership or remove the general partners in situations that include, but that are not limited to, fraud, illegal acts, gross negligence, and bankruptcy of the general partners.")), by a simple majority decision of the AAA-rated debt holders. As the debt of the entity is widely dispersed, no one party has the ability to unilaterally remove the manager. If removal of the manager occurs, the manager will continue to hold a 35 percent equity interest in the VIE. ##### [810-10-55-114](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-114) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:492fc2895ca0aea28d2d3a5677287ad3a109ddf6cb17c7d1b7f73b234e288afa Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The third-party equity investor has rights that are limited to administrative matters. ##### [810-10-55-115](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-115) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:e8d11711659f2c766155a21914a2884710392124dd6c98d957c3675af95b54ee Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To evaluate the facts and circumstances and determine which reporting entity, if any, is the primary beneficiary of a VIE, paragraph [810-10-25-38A](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A) requires that a reporting entity determine the purpose and design of the VIE, including the risks that the VIE was designed to create and pass through to its variable interest holders. In making this assessment, the variable interest holders of the VIE determined the following: 1. a The primary purposes for which the VIE was created were to provide investors with the ability to invest in a pool of asset-backed securities, to earn a positive spread between the interest that the VIE earns on its portfolio and the interest paid to the debt investors, and to generate management fees for the manager. 2. b The transaction was marketed to potential debt investors as an investment in a portfolio of asset-backed securities with exposure to the credit risk associated with the possible default by the issuers of the asset-backed securities in the portfolio and to the interest rate risk associated with the management of the portfolio. Additionally, the marketing of the transaction indicated that such risks would be mitigated by the support from the equity tranche. 3. c The equity tranche was designed to absorb the first dollar risk of loss related to credit risk and interest rate risk and to receive any residual returns from a favorable change in interest rates or credit risk that affects the proceeds received on the sale of asset-backed securities in the portfolio. ##### [810-10-55-116](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-116) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:61b262bac37bb4247fa35860510538acafba92f5ec967c3b73b199ca5196a67b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The third-party debt investors, the third-party equity investor, and the manager are the variable interest holders in the VIE. The fees paid to the manager also represent a variable interest on the basis of a consideration of the conditions in paragraphs [810-10-55-37 through 55-38](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-37) , specifically paragraph [810-10-55-37(c)](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-37), because of the manager holding the equity tranche. If the manager was only receiving fees and did not hold the equity tranche and if its related parties did not hold any variable interests in the VIE, then the fees would not be a variable interest. ##### [810-10-55-117](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-117) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:a638550cc70bad108923d40cf04c24abc2cf463725ef404638552b1eedcca5eb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [810-10-25-38B](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38B) requires that a reporting entity identify which activities most significantly impact the VIE's economic performance and determine whether it has the power to direct those activities. The economic performance of the VIE is most significantly impacted by the performance of the VIE's portfolio of assets. Thus, the activities that most significantly impact the VIE's economic performance are the activities that most significantly impact the performance of the portfolio of assets. The manager has the ability to manage the VIE's assets within the parameters of the trust documents. If the average rating of the portfolio declines, the VIE's governing documents require that the manager's discretion in managing the portfolio be curtailed. Although the AAA-rated debt holders can remove the manager without cause, no one party has the unilateral ability to exercise the kick-out rights over the manager. Therefore, such kick-out rights would not be considered in this primary beneficiary analysis. ##### [810-10-55-118](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-118) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:18ed8790d46cba8a2b0e93893237ac8463e8ade270ccd15a6f4d168d01ff660f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The debt holders of the VIE do not have voting rights or other rights that provide them with the power to direct activities that most significantly impact the VIE's economic performance. Although the AAA-rated debt holders can remove the manager without cause, no one party has the unilateral ability to exercise the kick-out rights over the manager. ##### [810-10-55-119](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-119) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:372b2bfe2dba728a0c3b3ea1c43de8998aaf9f3231ad587149ff5ce888f94770 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The third-party equity investor has the power to direct certain activities. However, the activities that the third-party equity investor has the power to direct are administrative and do not most significantly impact the VIE's economic performance. ##### [810-10-55-120](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-120) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:480dcbe6029dda69c8844eb4a28ddaf0085a8e8adcf917174ac209916ceab2c0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a reporting entity has the power to direct the activities of a VIE that most significantly impact the VIE's economic performance, then under the requirements of paragraph [810-10-25-38A](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A), that reporting entity also is required to determine whether it has the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The manager, as the 35 percent equity tranche holder, has the obligation to absorb losses and the right to receive benefits. As equity tranche holder, the manager has the most subordinate tranche and therefore absorbs 35 percent of the first dollar risk of loss and has the right to receive 35 percent of any residual benefits. The fees paid to the manager are both of the following: 1. a Compensation for services provided and commensurate with the level of effort required to provide the services 2. b Part of a service arrangement that includes only terms, conditions, or amounts that are customarily present in arrangements for similar services negotiated at arm's length. Therefore, the fees meet the criteria in paragraph [810-10-25-38H](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38H), and they should not be considered for purposes of evaluating the characteristic in paragraph [810-10-25-38A(b)](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A). Through the equity interest, the manager has the obligation to absorb losses of the VIE that could potentially be significant to the VIE and the right to receive benefits from the VIE that could potentially be significant to the VIE. ##### [810-10-55-121](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-121) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:159f8f2fbbcaa584c54e01b441d46d7d67cba958c87618c1dc731603815b58b1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On the basis of the specific facts and circumstances presented in this Case and the analysis performed, the manager would be deemed to be the primary beneficiary of the VIE because: 1. a It is the variable interest holder with the power to direct the activities of the VIE that most significantly impact the VIE's economic performance (and no single entity has the unilateral ability to exercise kick-out rights). 2. b Through its equity interest, it has the obligation to absorb losses of the VIE that could potentially be significant to the VIE and the right to receive benefits from the VIE that could potentially be significant to the VIE. ##### [810-10-55-122](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-122) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:96106640c9691f8c7fcafaba01639ed65b71b310b319cee9741ffa8fc89256c5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A VIE is created and financed with $94 of AAA-rated fixed-rate short-term debt with a 6-month maturity and $6 of equity. The VIE uses the proceeds to purchase a portfolio of floating-rate debt with an average life of four years and varying interest rates and short-term deposits with highly rated banks. The short-term debt securities and equity are held by multiple third-party investors. Upon maturity of the short-term debt, the VIE will either refinance the debt with existing investors or reissue the debt to new investors at existing market rates. ##### [810-10-55-123](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-123) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:e026180c0f9942efeef4860a5ff68872f223a3913f2f508d01285a8252e98f80 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The primary purpose of the VIE is to generate profits by maximizing the spread it earns on its asset portfolio and its weighted-average cost of funding. The transaction was marketed to potential debt investors as an investment in a portfolio of high-quality debt with exposure to the credit risk associated with the possible default by the issuers of the debt in the portfolio. The equity tranche is designed to absorb the first dollar risk of loss related to credit, liquidity, changes in fair value, and interest rate risk and to receive any benefit from a favorable change in credit, changes in fair value, and interest rates. ##### [810-10-55-124](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-124) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:4a0b18e429fb18eb62b059dba095982cd07832bd6471f329a280fc4e9c292c5e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The VIE is exposed to liquidity risk because the average tenor of the assets is greater than its liabilities. To mitigate liquidity risk, the VIE maintains a certain portion of its assets in short-term deposits with highly rated banks. The VIE has not entered into a liquidity facility to further mitigate liquidity risk. ##### [810-10-55-125](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-125) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:e1485a7dc1012807e9cc2f43570ed8bb76d8c6c25bb38cd5138a6ff77bb697f0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The sponsor of the VIE was significantly involved with the creation of the VIE. The sponsor performs various functions to manage the operations of the VIE, which include: 1. a Investment management—This management must adhere to the investment guidelines established at inception of the VIE. These guidelines include descriptions of eligible investments and requirements regarding the composition of the credit portfolio (including limits on country risk exposures, diversification limits, and ratings requirements). 2. b Funding management—This function provides funding management and operational support in relation to the debt issued and the equity with the objective of minimizing the cost of borrowing, managing interest rate and liquidity risks, and managing the capital adequacy of the VIE. 3. c Defeasance management—An event of defeasance occurs upon the failure of the rating agencies to maintain the ratings of the debt securities issued by the VIE at or above certain specified levels. In the event of defeasance, the sponsor is responsible for overseeing the orderly liquidation of the investment portfolio and the orderly discharge of the VIE's obligations. This includes managing the market and credit risks of the portfolio. ##### [810-10-55-126](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-126) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:9c54cb5f338f007883b8584a0d6947943fa24b9725099015b420acd341c20111 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For its services, the sponsor receives a fixed fee, calculated as an annual percentage of the aggregate equity outstanding, and a performance-based fee, calculated as a percentage of the VIE's profit above a targeted return. The fees paid to the sponsor are both of the following: 1. a Compensation for services provided and commensurate with the level of effort required to provide the services 2. b Part of a service arrangement that includes only terms, conditions, or amounts that are customarily present in arrangements for similar services negotiated at arm's length. ##### [810-10-55-127](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-127) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:37f8eafa1e803ba356d476b8456191a3e949f897f1cec51a258c174c74b6eaf1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The debt security holders of the VIE have no voting rights. The equity holders have limited voting rights that are typically limited to voting on amendments to the constitutional documents of the VIE. ##### [810-10-55-128](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-128) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:ed77cc5155cc2f47ebf9a3259a843f2798f7d95bbaab4cc057dedfc5d44556ca Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To evaluate the facts and circumstances and determine which reporting entity, if any, is the primary beneficiary of a VIE, paragraph [810-10-25-38A](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A) requires that a reporting entity determine the purpose and design of the VIE, including the risks that the VIE was designed to create and pass through to its variable interest holders. In making this assessment, the variable interest holders of the VIE determined the following: 1. a The primary purposes for which the VIE was created were to provide investors with the ability to invest in a pool of high-quality debt, to maximize the spread it earns on its asset portfolio over its weighted-average cost of funding, and to generate management fees for the sponsor. 2. b The transaction was marketed to potential debt investors as an investment in a portfolio of high-quality debt with exposure to the credit risk associated with the possible default by the issuers of the debt in the portfolio. 3. c The equity tranche is negotiated to absorb the first dollar risk of loss related to credit, liquidity, fair value, and interest rate risk and to receive a portion of the benefit from a favorable change in credit, fair value, and interest rates. 4. d The principal risks to which the VIE is exposed include credit, interest rate, and liquidity risk. ##### [810-10-55-129](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-129) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:0a14ca1b2428cbd18f66d4fe0d748b36449e3f49fe99e451b73fa66c0b086f4c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The third-party debt investors, the third-party equity investors, and the sponsor are the variable interest holders in the VIE. The fees paid to the sponsor represent a variable interest on the basis of a consideration of the conditions in paragraphs [810-10-55-37 through 55-38](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-37) , specifically paragraph [810-10-55-37(c)](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-37), because of the sponsor having an implicit variable interest in the VIE as discussed in paragraph [810-10-55-132](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-132). If the sponsor was only receiving fees and did not have the implicit variable interest and if its related parties did not hold any variable interests in the VIE, then the fees would not be a variable interest. ##### [810-10-55-130](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-130) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:43fe80394f2852c6f1f26feb2d0756907ef9ca615c2a3e5ae8146ac92b42072f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [810-10-25-38B](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38B) requires that a reporting entity identify which activities most significantly impact the VIE's economic performance and determine whether it has the power to direct those activities. The economic performance of the VIE is significantly impacted by the performance of the VIE's portfolio of assets and by the terms of the short-term debt. Thus, the activities that significantly impact the VIE's economic performance are the activities that significantly impact the performance of the portfolio of assets and the terms of the short-term debt (when the debt is refinanced or reissued). The sponsor manages the VIE's investment, funding, and defeasance activities. The fact that the sponsor was significantly involved with the creation of the VIE does not, in isolation, result in the sponsor being the primary beneficiary of the VIE. However, the fact that the sponsor was involved with the creation of the VIE indicated that the sponsor had the opportunity and the incentive to establish arrangements that result in the sponsor being the variable interest holder with the power to direct the activities that most significantly impact the VIE's economic performance. ##### [810-10-55-131](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-131) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:4314e5204af0fcd4b687962621888c4fa6101e5c905d6e2ee0770d8795249ebf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The debt security holders of the VIE have no voting rights and no other rights that provide them with the power to direct the activities that most significantly impact the VIE's economic performance. Although the equity holders have voting rights, they are limited to voting on amendments to the constitutional documents of the VIE, and those rights do not provide the equity holders with the power to direct the activities that most significantly impact the VIE's economic performance. ##### [810-10-55-132](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-132) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:e04e6d14cbc7d7d0263f40189938fd7d7ea18513fa96c7faff51b98a3fb3f669 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a reporting entity has the power to direct the activities of a VIE that most significantly impact the VIE's economic performance, then under the requirements of paragraph [810-10-25-38A](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A), that reporting entity also is required to determine whether it has the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The sponsor considered whether it had an implicit financial responsibility to ensure that the VIE operates as designed. Based on paragraphs [810-10-25-51](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-51) and [810-10-25-54](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-54), the sponsor determined that it has an implicit financial responsibility and that such obligation requires the sponsor to absorb losses that could potentially be significant to the VIE. This determination was influenced by the sponsor's concern regarding the risk to its reputation in the marketplace if the VIE did not operate as designed. The fees paid to the sponsor are both of the following: 1. a Compensation for services provided and commensurate with the level of effort required to provide the services 2. b Part of a service arrangement that includes only terms, conditions, or amounts that are customarily present in arrangements for similar services negotiated at arm's length. Therefore, the fees meet the criteria in paragraph [810-10-25-38H](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38H), and they should not be considered for purposes of evaluating the characteristic in paragraph [810-10-25-38A(b)](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A). ##### [810-10-55-133](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-133) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:52d0a10ef970f9c7bd45cf3936b16be5f0a52a515c31443eb5b3fae751c00723 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On the basis of the specific facts and circumstances presented in this Case and the analysis performed, the sponsor would be deemed to be the primary beneficiary of the VIE because: 1. a It is the variable interest holder with the power to direct the activities of the VIE that most significantly impact the VIE's economic performance. 2. b Through its implicit financial responsibility to ensure that the VIE operates as designed, it has the obligation to absorb losses of the VIE that could potentially be significant to the VIE. ##### [810-10-55-134](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-134) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:dcb78892b0096c3243128d1082f1ca00fcab3046d276900642e59919c1f88f58 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A VIE is created by a reporting entity (the sponsor) and financed with $98 of AAA-rated fixed-rate short-term debt with a 3-month maturity and $2 of subordinated notes. The VIE uses the proceeds to purchase a portfolio of medium-term assets with average tenors of three years. The asset portfolio is obtained from multiple sellers. The short-term debt and subordinated notes are held by multiple third-party investors. Upon maturity of the short-term debt, the VIE will either refinance the debt with existing investors or reissue the debt to new investors. ##### [810-10-55-135](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-135) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:1c3ae90a993f4b40d709c05e63e552def2c57434af53db2e1554b53acd4f5e53 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The sponsor of the VIE provides credit enhancement in the form of a letter of credit equal to 5 percent of the VIE's assets and it provides a liquidity facility to fund the cash flow shortfalls on 100 percent of the short-term debt. Cash flow shortfalls could arise due to a mismatch between collections on the underlying assets of the VIE and payments due to the short-term debt holders or to the inability of the VIE to refinance or reissue the short-term debt upon maturity. ##### [810-10-55-136](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-136) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:9b9acc8ef6b94a6502820e38f4a7d28a6e2f5b90b923271b282ee0536d3d98c1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A credit default of the VIE's assets resulting in deficient cash flows is absorbed as follows: 1. a First by the subordinated note holders 2. b Second by the sponsor's letter of credit 3. c Third by the short-term debt holders. The sponsor's liquidity facility does not advance against defaulted assets. ##### [810-10-55-137](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-137) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:727778db61d1e62e5625fe35ac152ef48832d59c642563e034b66b9fb44e1c09 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The VIE is exposed to liquidity risk because the average life of the assets is greater than that of its liabilities. The VIE enters into a liquidity facility with the sponsor to mitigate liquidity risk. ##### [810-10-55-138](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-138) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:c6bb1b086256fe3051b153d1ac307029e3ca7eb37da9c293b01a6ff1414e073c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The transaction was marketed to potential debt investors as an investment in a portfolio of highly rated medium-term assets with minimal exposure to the credit risk associated with the possible default by the issuers of the assets in the portfolio. The subordinated notes were designed to absorb the first dollar risk of loss related to credit. The VIE is marketed to all investors as having a low probability of credit exposure due to the nature of the assets obtained. Furthermore, the VIE is marketed to the short-term debt holders as having protection from liquidity risk due to the liquidity facility provided by the sponsor. ##### [810-10-55-139](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-139) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:28c7c1860d45e9e2d28af3adeca6f3cb1a5bf65d317a63de6b5a3cd4ffc006e8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The sponsor of the VIE performs various functions to manage the operations of the VIE. Specifically, the sponsor: 1. a Establishes the terms of the VIE 2. b Approves the sellers permitted to sell to the VIE 3. c Approves the assets to be purchased by the VIE 4. d Makes decisions regarding the funding of the VIE including determining the tenor and other features of the short-term debt issued 5. e Administers the VIE by monitoring the assets, arranging for debt placement, compiling monthly reports, and ensuring compliance with the VIE's credit and investment policies. ##### [810-10-55-140](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-140) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:55a30cf76058534716d4137299c9dc9fdebfa79b38e5c1afdbfb0f992489bb3f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For providing the letter of credit, liquidity facility, and management services, the sponsor receives fixed fees that are calculated as an annual percentage of the asset value. The short-term debt holders and subordinated note holders have no voting rights. The fees paid to the sponsor for its management services are both of the following: 1. a Compensation for services provided and commensurate with the level of effort required to provide the services 2. b Part of a service arrangement that includes only terms, conditions, or amounts that are customarily present in arrangements for similar services negotiated at arm's length. ##### [810-10-55-141](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-141) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:81dd14411a3d96e20e6098c542d3c816d56418bef955a2f28bde1a63ee688609 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To evaluate the facts and circumstances and determine which reporting entity, if any, is the primary beneficiary of a VIE, paragraph [810-10-25-38A](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A) requires that a reporting entity determine the purpose and design of the VIE, including the risks that the VIE was designed to create and pass through to its variable interest holders. In making this assessment, the variable interest holders of the VIE determined the following: 1. a The primary purposes for which the VIE was created were to provide investors with the ability to invest in a pool of highly rated medium-term assets, to provide the multiple sellers to the VIE with access to lower-cost funding, to earn a positive spread between the interest that the VIE earns on its asset portfolio and its weighted-average cost of funding, and to generate fees for the sponsor. 2. b The transaction was marketed to potential debt investors as an investment in a portfolio of highly rated medium-term assets with minimal exposure to the credit risk associated with the possible default by the issuers of the assets in the portfolio. The subordinated debt is designed to absorb the first dollar risk of loss related to credit and interest rate risk. The VIE is marketed to all investors as having a low probability of credit loss due to the nature of the assets obtained. Furthermore, the VIE is marketed to the short-term debt holders as having protection from liquidity risk due to the liquidity facility provided by the sponsor. 3. c The principal risks to which the VIE is exposed include credit, interest rate, and liquidity. ##### [810-10-55-142](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-142) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:7a5ec252d0d218ce7a6f320ec683f1c380baa8109e2a24f6a946b548abad3583 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The short-term debt holders, the third-party subordinated note holders, and the sponsor are the variable interest holders in the VIE. The letter of credit and liquidity facility provided by the sponsor protect holders of other variable interests from suffering losses of the VIE. Therefore, the sponsor's fees for the letter of credit and liquidity facility are not eligible for the evaluation in paragraph [810-10-55-37](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-37) and are variable interests in the VIE. The fees paid to the sponsor for its management services represent a variable interest on the basis of a consideration of the conditions in paragraphs [810-10-55-37 through 55-38](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-37) , specifically paragraph [810-10-55-37(c)](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-37), because of the sponsor providing the letter of credit and liquidity facility and the fees for the letter of credit and liquidity facility. If the sponsor was only receiving management fees, did not provide the letter of credit and liquidity facility, and did not receive fees for the letter of credit and liquidity facility and if its related parties did not hold any variable interests in the VIE, then the management fees would not be a variable interest. ##### [810-10-55-143](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-143) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:0967b9a187a7e0b2d347eadca4253bd4742b437a7ead9b7b00097e702adf0234 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [810-10-25-38B](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38B) requires that a reporting entity identify which activities most significantly impact the VIE's economic performance and determine whether it has the power to direct those activities. The economic performance of the VIE is significantly impacted by the performance of the VIE's portfolio of assets and by the terms of the short-term debt. Thus, the activities that significantly impact the VIE's economic performance are the activities that significantly impact the performance of the portfolio of assets and the terms of the short-term debt (when the debt is refinanced or reissued). The sponsor manages the operations of the VIE. Specifically, the sponsor establishes the terms of the VIE, approves the sellers permitted to sell to the VIE, approves the assets to be purchased by the VIE, makes decisions about the funding of the VIE including determining the tenor and other features of the short-term debt issued, and administers the VIE by monitoring the assets, arranging for debt placement, and ensuring compliance with the VIE's credit and investment policies. The fact that the sponsor was significantly involved with the creation of the VIE does not, in isolation, result in the sponsor being the primary beneficiary of the VIE. However, the fact that the sponsor was involved with the creation of the VIE may indicate that the sponsor had the opportunity and the incentive to establish arrangements that result in the sponsor being the variable interest holder with the power to direct the activities that most significantly impact the VIE's economic performance. ##### [810-10-55-144](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-144) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:fc468f8f37bc87ecab7de8e22d28499b73ed8c9a70f28a61065145852defdb16 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The short-term debt holders and subordinated note holders of the VIE have no voting rights and no other rights that provide them with power to direct the activities that most significantly impact the VIE's economic performance. ##### [810-10-55-145](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-145) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:aa360b234f30f924d3f1e7dc74363e26b5e63e080baaefdaf6fda99a6b3cbd05 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a reporting entity has the power to direct the activities of a VIE that most significantly impact the VIE's economic performance, then under the requirements of paragraph [810-10-25-38A](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A), that reporting entity also is required to determine whether it has the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The fees paid to the sponsor for its management services are both of the following: 1. a Compensation for services provided and commensurate with the level of effort required to provide the services 2. b Part of a service arrangement that includes only terms, conditions, or amounts that are customarily present in arrangements for similar services negotiated at arm's length. Therefore, the management fees meet the criteria in paragraph [810-10-25-38H](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38H), and they should not be considered for purposes of evaluating the characteristic in paragraph [810-10-25-38A(b)](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A). However, the sponsor still, through its letter of credit and liquidity facility fees, receives benefits from the VIE that could potentially be significant to the VIE. The sponsor, through its letter of credit and liquidity facility, also has the obligation to absorb losses of the VIE that could potentially be significant to the VIE. ##### [810-10-55-146](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-146) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:53776e95f745446a8dcb0826873ba6ac0fdf034a7ab035903ec69922e08ab721 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On the basis of the specific facts and circumstances presented in this Case and the analysis performed, the sponsor would be deemed to be the primary beneficiary of the VIE because: 1. a It is the variable interest holder with the power to direct the activities of the VIE that most significantly impact the VIE's economic performance. 2. b Through its letter of credit and liquidity facility, the sponsor has the obligation to absorb losses that could potentially be significant to the VIE, and, through its fees for the letter of credit and liquidity facility, the sponsor has the right to receive benefits that could potentially be significant to the VIE. ##### [810-10-55-147](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-147) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:e8520540301df8dbca5169154a8badd27157490ca54e94025d665a101284c658 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A VIE is created and financed with $100 of a single class of investment-grade 30-year fixed-rate debt securities. The VIE uses the proceeds to purchase $100 of 30-year fixed-rate residential mortgage loans from the transferor. The VIE enters into a guarantee facility that absorbs 100 percent of the credit losses incurred on the VIE's assets. The assets acquired by the VIE are underwritten by the transferor in accordance with the parameters established by the guarantor. Additionally, all activities of the VIE are prespecified by the trust agreement and servicing guide, which are both established by the guarantor. No critical decisions are generally required for the VIE unless default of an underlying asset is reasonably foreseeable or occurs. ##### [810-10-55-148](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-148) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:6967491bb21db0cfa9a30a99fe69cde78ab699a813a45c1406e5e7d2ef98a95e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The transaction was marketed to potential debt security holders as an investment in a portfolio of residential mortgage loans with exposure to the credit risk of the guarantor and to the prepayment risk associated with the underlying loans of the VIE. Each month, the security holders receive interest and principal payments in proportion to their percentage ownership of the underlying loans. ##### [810-10-55-149](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-149) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:977aeb411623753a12c134b0e50cf540d4ee840c187d1e49d30edb5fb4fa143b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If there is a shortfall in contractually required loan payments from the borrowers or if the loan is foreclosed on and the liquidation of the underlying property does not generate sufficient proceeds to meet the required payments on all securities, the guarantor will make payments to the debt securities holders to ensure timely payment of principal and accrued interest on the debt securities. ##### [810-10-55-150](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-150) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:ece59d1580fe902565f014f5e3fd9ee9e4d9d0fcff86992e665f2393d37dde64 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guarantor also serves as the master servicer for the VIE. As master servicer, the guarantor services the securities issued by the VIE. Generally, if a mortgage loan is 120 days (or 4 consecutive months) delinquent, and if other circumstances are met, the guarantor has the right to buy the loan from the VIE. The master servicer can only be removed for a material breach in its obligations. As compensation for the guarantee and services provided, the guarantor receives a fee that is calculated monthly as a percentage of the unpaid principal balance on the underlying loans. ##### [810-10-55-151](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-151) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:32a8aa3d11293a679befc9bcbda04198ded475bc130ba68fdcc517d98eac0b18 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As master servicer, the guarantor also is responsible for supervising and monitoring the servicing of the residential mortgage loans (primary servicing). The VIE's governing documents provide that the guarantor is responsible for the primary servicing of the loans; however, the guarantor is allowed to, and does, hire the transferor to perform primary servicing activities that are conducted under the supervision of the guarantor. The guarantor monitors the primary servicer's performance and has the right to remove the primary servicer at any time it considers such a removal to be in the best interest of the security holders. ##### [810-10-55-152](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-152) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:19cb23df64ed0cf0a6ffe97be7958adc201a69fecb8d4a1b4ccb0b76c1d884ef Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The primary servicing activities are performed under the servicing guide established by the guarantor. Examples of the primary servicing activities include collecting and remitting principal and interest payments, administering escrow accounts, and managing default. When a loan becomes delinquent or it is reasonably foreseeable of becoming delinquent, the primary servicer can propose a default mitigation strategy in which the guarantor can approve, reject, or require another course of action if it considers such action is in the best interest of the security holders. As compensation for servicing the underlying loans, the transferor receives a fee that is calculated monthly as a percentage of the unpaid principal balance on the underlying loans. ##### [810-10-55-153](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-153) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:4f3702d57d6b71fde82bcaf2cff5305a6233106e03fb36596d38319a8c075111 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To evaluate the facts and circumstances and determine which reporting entity, if any, is the primary beneficiary of a VIE, paragraph [810-10-25-38A](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A) requires that a reporting entity determine the purpose and design of the VIE, including the risks that the VIE was designed to create and pass through to its variable interest holders. In making this assessment, the variable interest holders of the VIE determined the following: 1. a The primary purposes for which the VIE was created were to provide investors with the ability to invest in a pool of residential mortgage loans with a third-party guarantee for 100 percent of the principal and interest payments due on the mortgage loans in the VIE, to provide the transferor to the VIE with access to liquidity for its originated loans and an ongoing servicing fee, and to generate fees for the guarantor. 2. b The transaction was marketed to potential debt security holders as an investment in a portfolio of residential mortgage loans with exposure to the credit risk of the guarantor and prepayment risk associated with the underlying assets of the VIE. 3. c The principal risks to which the VIE is exposed include credit risk of the underlying assets, prepayment risk, and the risk of fluctuations in the value of the underlying real estate. The credit risk of the underlying assets and the risk of fluctuations in the value of the underlying real estate are fully absorbed by the guarantor. ##### [810-10-55-154](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-154) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:d7cc71c065f4735a83c269c4bf7a03538f93232e9ed2aadbf7de6a271dca3b7d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The debt securities holders and the guarantor are the variable interest holders in the VIE. The fees paid to the transferor do not represent a variable interest on the basis of a consideration of the conditions in paragraphs [810-10-55-37 through 55-38](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-37) . The guarantee arrangement protects holders of other variable interests from suffering losses in the VIE because the guarantor is required to fully absorb the credit risk of the underlying assets of the VIE and the risk of fluctuations in the value of the underlying real estate. Therefore, the guarantor's fees are not eligible for the evaluation in paragraph [810-10-55-37](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-37). ##### [810-10-55-155](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-155) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:fc20c223381a2d879ea389424435c579c42d96350d5af8ecc2d32471299243f8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [810-10-25-38B](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38B) requires that a reporting entity identify which activities most significantly impact the VIE's economic performance and determine whether it has the power to direct those activities. The economic performance of the VIE is most significantly impacted by the performance of its underlying assets. Thus, the activities that most significantly impact the VIE's economic performance are the activities that most significantly impact the performance of the underlying assets. The guarantor, who is also the master servicer, has the ability (through establishment of the servicing terms, to appoint and remove the primary servicer, to direct default mitigation, and to purchase defaulted assets) to manage the VIE's assets that become delinquent (or may become delinquent in the reasonably foreseeable future) to improve the economic performance of the VIE. ##### [810-10-55-156](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-156) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:0e216c5aa5956e456d838c3ec541b5297530b996cf56a841376824db0c859019 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Prepayment risk is also a risk that the VIE was designed to create and pass through. However, no variable interest holder has the power to direct activities related to such risk. ##### [810-10-55-157](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-157) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:b6e401d651aa3bf2eb9a5e987cedb2516c3543ea402f8a7b96be900ad1dc5481 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because the guarantor is able to appoint and replace the primary servicer and direct default mitigation, the primary servicer does not have the power to direct the activities that most significantly impact the VIE's economic performance. In addition, the primary servicer and its related parties do not hold a variable interest in the VIE. Thus, the primary servicer cannot be the primary beneficiary of the VIE. Furthermore, the security holders have no voting rights and, thus, no power to direct the activities that most significantly impact the VIE's economic performance. ##### [810-10-55-158](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-158) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:403abcb261d6651fb199ced4c98d58cd0981e7aaaf727766ad22e4900675b5e2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a reporting entity has the power to direct the activities of a VIE that most significantly impact the VIE's economic performance, then under the requirements of paragraph [810-10-25-38A](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A), that reporting entity also is required to determine whether it has the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The guarantor, through its fee arrangement, receives benefits, which may or may not potentially be significant under this analysis; however, the guarantor has the obligation to absorb losses of the VIE that could potentially be significant through its guarantee obligation. Therefore, the fees are not eligible for the evaluation in paragraph [810-10-25-38H](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38H), and they should be considered for purposes of evaluating the characteristic in paragraph [810-10-25-38A(b)](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A). ##### [810-10-55-159](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-159) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:668b6eb5b8432699d622d82a2148f27466fba469f9355983e3c17d65a10b40fc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On the basis of the specific facts and circumstances presented in this Case and the analysis performed, the guarantor would be deemed to be the primary beneficiary of the VIE because: 1. a It is the variable interest holder with the power to direct the activities of the VIE that most significantly impact the VIE's economic performance. 2. b Through its guarantee, it has the obligation to absorb losses of the VIE that could potentially be significant to the VIE. ##### [810-10-55-160](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-160) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:2c3e9ffc1d5ed998962ad7b830ca75ad4f3986fad591488bbec9a3484be19a40 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A VIE is created and financed with $100 of 30-year fixed-rate debt securities. The securities are issued in 2 tranches (a $90 senior tranche and a $10 residual tranche). The senior tranche securities are investment grade and are widely dispersed among third-party investors. The residual tranche securities are held by the transferor. The VIE uses the proceeds to purchase $100 of 30-year fixed-rate residential mortgage loans from a transferor. A default on the underlying loans is absorbed first by the residual tranche held by the transferor. All activities of the VIE are prespecified by a pooling and servicing agreement for the transaction. No critical decisions are generally required for the VIE unless default of an underlying asset is reasonably foreseeable or occurs. ##### [810-10-55-161](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-161) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:c6c4ed166518220b6f81c7638e06c6e7b7737db288e0bb30f0ee824a576e8564 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The transaction was marketed to potential senior debt security holders as an investment in a portfolio of residential mortgage loans with exposure to the credit risk of the underlying loan borrowers and to the prepayment risk associated with the underlying loans of the VIE. Each month the security holders receive interest and principal payments in proportion to their percentage of ownership of the underlying loans. The residual tranche was designed to provide a credit enhancement to the transaction and to absorb the first dollar risk of loss related to credit. ##### [810-10-55-162](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-162) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:f854af16ceb74ea0a9579d5333bf262113e8e2fca1cd6d7973cb26822d14c5e7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The primary servicing responsibilities are retained by the transferor. No party has the ability to remove the transferor as servicer. ##### [810-10-55-163](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-163) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:411142e35e4ed3d40098ad688e641d32575cc650ddc4f387b21169d795cb0d52 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The servicing activities are performed in accordance with the pooling and servicing agreement. Examples of the servicing activities include collecting and remitting principal and interest payments, administering escrow accounts, monitoring overdue payments, and overall default management. Default management includes evaluating the borrower's financial condition to determine which loss mitigation strategy (specified in the pooling and servicing agreement) will maximize recoveries on a particular loan. The acceptable default management strategies are limited to the actions specified in the pooling and servicing agreement and include all of the following: 1. a Modifying the terms of loans when default is reasonably foreseeable 2. b Temporary forbearance on collections of principal and interest (such amounts would be added to the unpaid balance on the loan) 3. c Short sales in which the servicer allows the underlying borrower to sell the mortgaged property even if the anticipated sale price will not permit full recovery of the contractual loan amounts. ##### [810-10-55-164](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-164) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:6adffa52279a958bd45cf5a55d206c1052560765fa5837385a7d6bbedfa89c25 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As compensation for servicing the underlying loans, the transferor receives a fee, calculated monthly as a percentage of the unpaid principal balance on the underlying loans. Although the servicing activities, particularly managing default, are required to be performed in accordance with the pooling and servicing agreement, the transferor, as servicer, has discretion in determining which strategies within the pooling and servicing agreement to utilize to attempt to maximize the VIE's economic performance. The fees paid to the transferor are both of the following: 1. a Compensation for services provided and commensurate with the level of effort required to provide those services 2. b Part of a service arrangement that includes only terms, conditions, or amounts that are customarily present in arrangements for similar services negotiated at arm's length. ##### [810-10-55-165](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-165) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:bcfdb65f7fde198b6ef15f037b11f7fb8bfb786e68466fba10fdbbf4fb972495 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To evaluate the facts and circumstances and determine which reporting entity, if any, is the primary beneficiary of a VIE, paragraph [810-10-25-38A](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A) requires that a reporting entity determine the purpose and design of the VIE, including the risks that the VIE was designed to create and pass through to its variable interest holders. In making this assessment, the variable interest holders of the VIE determined the following: 1. a The primary purposes for which the VIE was created were to provide investors with the ability to invest in a pool of residential mortgage loans and to provide the transferor to the VIE with access to liquidity for its originated loans and an ongoing servicing fee and potential residual returns. 2. b The transaction was marketed to potential senior debt security holders as an investment in a portfolio of residential mortgage loans with credit enhancement provided by the residual tranche and prepayment risk associated with the underlying assets of the VIE. The marketing of the transaction indicated that credit risk would be mitigated by the subordination of the residual tranche. 3. c The principal risks to which the VIE is exposed include credit of the underlying assets, prepayment risk, and the risk of fluctuations in the value of the underlying real estate. ##### [810-10-55-166](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-166) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:7fa958796d2d371a8e5c11241c11d99124f101c9e133904c657161eb3bbcd4ae Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The debt security holders and the transferor are the variable interest holders in the VIE. The fee paid to the transferor (in its role as servicer) represents a variable interest on the basis of a consideration of the conditions in paragraphs [810-10-55-37 through 55-38](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-37) , specifically paragraph [810-10-55-37(c)](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-37), because of the transferor holding the residual tranche. If the transferor was only receiving fees and did not hold the residual tranche and if its related parties did not hold any variable interests in the VIE, then the fees would not be a variable interest. ##### [810-10-55-167](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-167) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:259c1f733b7d4eb1087e86656deb828acce0e2dba2a5a3c2f189afeb0b47f334 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [810-10-25-38B](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38B) requires that a reporting entity identify which activities most significantly impact the VIE's economic performance and determine whether it has the power to direct those activities. The economic performance of the VIE is most significantly impacted by the performance of its underlying assets. Thus, the activities that most significantly impact the VIE's economic performance are the activities that most significantly impact the performance of the underlying assets. The transferor, as servicer, has the ability to manage the VIE's assets that become delinquent (or are reasonably foreseeable of becoming delinquent) to improve the economic performance of the VIE. Additionally, no party can remove the transferor in its role as servicer. The default management activities are performed only after default of the underlying assets or when default is reasonably foreseeable. However, a reporting entity's ability to direct the activities of a VIE when circumstances arise or events happen constitutes power if that ability relates to the activities that most significantly impact the economic performance of the VIE. A reporting entity does not have to exercise its power in order to have power to direct the activities of a VIE. ##### [810-10-55-168](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-168) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:ca2e643460540c47ed4bee1b107933c84bddf50aa712eeb2057bb19397894761 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Prepayment risk is also a risk that the VIE was designed to create and pass through. However, no variable interest holder has the power to direct matters related to such risk. ##### [810-10-55-169](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-169) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:267885c75b9270ce6423bbc3110191e198a27a944fbad06b8fb680edf0c82540 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The senior security holders have no voting rights and, thus, no power to direct the activities that most significantly impact the VIE's economic performance. ##### [810-10-55-170](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-170) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:90a38f6b0744d5489a5f6dea398eab44801a96680375526476d1258cccdd7348 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a reporting entity has the power to direct the activities of a VIE that most significantly impact the VIE's economic performance, then under the requirements of paragraph [810-10-25-38A](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A), that reporting entity also is required to determine whether it has the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The transferor, through its residual tranche ownership, has the obligation to absorb losses and the right to receive benefits, either of which could potentially be significant to the VIE. The fees paid to the transferor are both of the following: 1. a Compensation for services provided and commensurate with the level of effort required to provide those services 2. b Part of a service arrangement that includes only terms, conditions, or amounts that are customarily present in arrangements for similar services negotiated at arm's length. Therefore, the fees meet the criteria in paragraph [810-10-25-38H](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38H) and should not be considered for purposes of evaluating the characteristic in paragraph [810-10-25-38A(b)](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A). ##### [810-10-55-171](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-171) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:48057966e9605ec5df83ba3ed981d472c2245702f166e9e5e020f77ea4255280 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On the basis of the specific facts and circumstances presented in this Case and the analysis performed, the transferor would be deemed to be the primary beneficiary of the VIE because: 1. a It is the variable interest holder with the power to direct the activities of the VIE that most significantly impact the VIE's economic performance. 2. b Through its residual tranche ownership, it has the obligation to absorb losses and the right to receive benefits, either of which could potentially be significant to the VIE. ##### [810-10-55-172](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-172) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:2d0b475fa034b1b05d475931e90c2006e97e9a3a63aac1ce6d9e4538d7aec34d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A VIE is created and financed with $950 of 5-year fixed-rate debt and $50 of equity. The VIE uses the proceeds from the issuance to purchase an asset to be leased to a lessee with an AA credit rating. The equity is subordinate to the debt because the debt is paid before any cash flows are available to the equity investors. The lease has a five-year term and is classified as a direct financing lease by the lessor and as an operating lease by the lessee. The lessee, however, is considered the owner of the underlying asset for tax purposes and, thus, receives tax depreciation benefits. ##### [810-10-55-173](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-173) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:5dcfaff88b80dfafc6a7a94d96a40d29f01ca846992cf41bc1842752d3f5cc9d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The lessee is required to provide a first-loss residual value guarantee for the expected future value of the underlying asset at the end of five years (the option price) up to a specified percentage of the option price, and it has a fixed-price purchase option to acquire the underlying asset for the option price. If the lessee does not exercise the fixed-price purchase option at the end of the lease term, the lessee is required to remarket the underlying asset on behalf of the VIE. If the underlying asset is sold for an amount less than the option price, the lessee is required to pay the VIE the difference between the option price and the sales proceeds, which is not to exceed a specified percentage of the option price. If the underlying asset is sold for an amount greater than the option price, the lessee is entitled to the excess of the sales proceeds over the option price. A third-party residual value guarantor provides a very small additional residual value guarantee to the lessor VIE, which allows the lessor to achieve direct financing lease treatment. ##### [810-10-55-174](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-174) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:12b53aa33afca03727a2558444f4db1ca27fc8d3925692b2f6133dc9930f58f8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The governing documents for the VIE do not permit the VIE to buy additional assets or sell existing assets during the five-year holding period, and the terms of the lease agreement and the governing documents for the VIE do not provide the equity holders with the power to direct any activities of the VIE. The VIE was formed so that the lessee would have rights to use the underlying asset under an operating lease and would retain substantially all of the risks and rewards from appreciation or depreciation in value of the underlying asset. ##### [810-10-55-175](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-175) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:d3c515309a07ce58f5bc1a213f561beab08602576506513f1e87d2dc1cfd69de Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The transaction was marketed to potential investors as an investment in a portfolio of AA-rated assets collateralized by an underlying asset that is leased that would provide a fixed-rate return to debt holders equivalent to AA-rated assets. The return to equity investors is expected to be slightly greater than the return to the debt investors because the equity is subordinated to the debt. ##### [810-10-55-176](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-176) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:278f69504942394be988fb9bdcb3b4195d0e0e9e4c1507be9902fa885db1c73d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To evaluate the facts and circumstances and determine which reporting entity, if any, is the primary beneficiary of a VIE, paragraph [810-10-25-38A](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A) requires that a reporting entity determine the purpose and design of the VIE, including the risks that the VIE was designed to create and pass through to its variable interest holders. In making this assessment, the variable interest holders of the VIE determined the following: 1. a The primary purpose for which the VIE was created was to provide the lessee with use of the underlying asset for five years with substantially all of the rights and obligations of ownership, including tax benefits. 2. b The VIE was marketed to potential investors as an investment in a portfolio of AA-rated assets collateralized by an underlying asset that is leased that would provide a fixed-rate return to debt holders equivalent to AA-rated assets. The return to equity investors is expected to be slightly greater than the return to the debt investors because the equity is subordinated to the debt. 3. c The residual value guarantee effectively transfers substantially all of the risk associated with the underlying asset (that is, decreases in value) to the lessee and the fixed-price purchase option effectively transfers substantially all of the rewards from the underlying asset (that is, increases in value) to the lessee. 4. d The VIE is designed to be exposed to the risks associated with a cumulative change in fair value of the underlying asset at the end of five years as well as credit risk related to the potential default by the lessee of its contractually required lease payments. ##### [810-10-55-177](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-177) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:b7f0106bf81cf96fd2363437763ae3a18c23d6c3500f876f38897caa30a82664 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The debt investors, the equity investors, and the lessee are the variable interest holders in the VIE. ##### [810-10-55-178](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-178) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:b2c96c9726027f6487ef1db4d4c0b2b9207d854daf525cea9011f63331ff24a7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [810-10-25-38B](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38B) requires that a reporting entity identify which activities most significantly impact the VIE's economic performance and determine whether it has the power to direct those activities. The economic performance of the VIE is significantly impacted by the fair value of the underlying asset and the credit of the lessee. The lessee's maintenance and operation of the underlying asset has a direct effect on the fair value of the underlying asset, and the lessee directs the remarketing of the underlying asset. The lessee also has the ability to increase the benefits it can receive and limit the losses it can suffer by the manner in which it uses the underlying asset and how it remarkets the underlying asset. ##### [810-10-55-179](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-179) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:e37ba25166ffe63004d02a73f61d1d0f9c01dc705a52d174be7618b1058d32c8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The debt holders do not have the power to direct activities that most significantly impact the VIE's economic performance. Although the equity holders establish the terms of the lease agreement, the terms of the lease agreement do not provide the equity holders with the power to direct activities that most significantly impact the VIE's economic performance. ##### [810-10-55-180](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-180) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:35497ca27ba67d077800f237db66b81529abb4de11662135fcc9616824d45cc2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a reporting entity has the power to direct the activities of a VIE that most significantly impact the VIE's economic performance, then under the requirements of paragraph [810-10-25-38A](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A), that reporting entity also is required to determine whether it has the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The lessee has both the obligation to absorb losses that could potentially be significant to the VIE and the right to receive benefits that could potentially be significant to the VIE through the residual value guarantee and the purchase option, respectively. ##### [810-10-55-181](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-181) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:afdd6418859071bff30c48a5473961c14c53d62fcf6dab5df8723ef131501e88 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On the basis of the specific facts and circumstances presented in this Case and the analysis performed, the lessee would be deemed the primary beneficiary of the VIE because: 1. a It is the variable interest holder with the power to direct the activities of the VIE that most significantly impact the VIE's economic performance. 2. b Through its residual value guarantee and purchase option, it has the obligation to absorb losses of the VIE that could potentially be significant to the VIE and the right to receive benefits from the VIE that could potentially be significant to the VIE. ##### [810-10-55-182](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-182) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:bd55bd98f076f4eeaf281cf57420e6de16280948b07790f55e1b7adc6b304d7e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Cases illustrate the application of the guidance in paragraphs [810-10-25-38A through 25-38J](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A) related to the determination of the entity that has the power to direct the activities of the VIE that most significantly impact the VIE's economic performance. 1. a Joint decision making, different activities (Case H1) 2. b Separate decision making, different activities (Case H2) 3. c Separate decision making, same activities (Case H3) 4. d Separate decision making, similar and different activities (Case H4). ##### [810-10-55-183](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-183) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:73cc87d4f46edaa3c6ea123d75e9ce97dc45d4ded23a5c6df95a81309d69377a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Each of the Cases share the following assumptions: 1. a Reporting Entity A and Reporting Entity B form a VIE to manufacture, distribute, and sell a beverage. The VIE is funded with $95 million of 20-year fixed-rate debt and $5 million of equity. The debt is widely dispersed among third-party investors. The equity is held by Reporting Entity A and Reporting Entity B. Reporting Entity A and Reporting Entity B are not related parties. 2. b Reporting Entity A and Reporting Entity B each have 50 percent of the voting rights and each represents 50 percent of the board of directors. 3. c Reporting Entity A is a beverage manufacturer and distributor. Reporting Entity B is also a beverage manufacturer and distributor. ##### [810-10-55-184](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-184) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:287e4a65e73fe03affc8eddb52a151120b20162e76384bdeec906f74684c7a20 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Reporting Entity A is responsible for manufacturing the beverage. Reporting Entity B is responsible for distributing and selling the beverage. Decisions about the manufacturing, distributing, and selling of the beverage require the consent of both Reporting Entity A and Reporting Entity B. All other decisions about the VIE are jointly decided by Reporting Entity A and Reporting Entity B through their voting interests and equal board representation. Any matters that cannot be resolved or agreed upon must be resolved through a third-party arbitration process. ##### [810-10-55-185](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-185) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:f72e27497e0010c496882115e1f790cea4c45668d1475f605f937fdd0910c4b3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To evaluate the facts and circumstances and determine which reporting entity, if any, is the primary beneficiary of a VIE, paragraph [810-10-25-38A](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A) requires that a reporting entity determine the purpose and design of the VIE, including the risks that the VIE was designed to create and pass through to its variable interest holders. In making this assessment, the variable interest holders of the VIE determined that the primary purpose for which the VIE was created was to provide Reporting Entity A with access to Reporting Entity B's distribution and sales network and for Reporting Entity B to gain access to Reporting Entity A's manufacturing process and technology. ##### [810-10-55-186](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-186) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:e06e9d7e29a9115face36358bfcea04c893d4233a13660da7f1af24750d06d2b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Reporting Entity A and Reporting Entity B (through their equity investment) and the debt investors are the variable interest holders in the VIE. ##### [810-10-55-187](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-187) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:004717a5de60da17aca925221c474eac7f4d0caaae11087bca94bdf004b24937 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [810-10-25-38B](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38B) requires that a reporting entity identify which activities most significantly impact the VIE's economic performance and determine whether it has the power to direct those activities. The economic performance of the VIE is significantly impacted by the manufacturing of the beverage and by the selling and distributing of the beverage. Thus, the activities that significantly impact the VIE's economic performance are the activities that significantly impact the manufacturing of the beverage and the selling and distributing of the beverage. ##### [810-10-55-188](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-188) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:31aa1ce811242123dabd4462bc3a0644cf226e396dfdb852c0c51f87ab849400 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [810-10-25-38D](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38D) provides that if a reporting entity determines that power is, in fact, shared among multiple parties such that no one party has the power to direct the activities of a VIE that most significantly impact the VIE's economic performance, then no party is the primary beneficiary. Power is shared if two or more unrelated parties together have the power to direct the activities of a VIE that most significantly impact the VIE's economic performance, and if decisions about those activities require the consent of each of the parties sharing power. ##### [810-10-55-189](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-189) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:9844bfb23e40887648c441af848652f881a085ba45321a3739f9f7a92b808402 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Reporting Entity A and Reporting Entity B share the power to direct the activities that will most significantly impact the economic performance of the VIE through their ability to make decisions about the manufacturing, distributing, and selling of the beverage and because of the fact that those decisions require each party's consent. ##### [810-10-55-190](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-190) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:2675967f7f018d4d9f94459467450151541083f1e87279718d34afc8dba7c25f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The debt holders of the VIE have no voting rights and no other rights that provide them with the power to direct the activities that most significantly impact the VIE's economic performance. ##### [810-10-55-191](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-191) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:339974b01f691cb3344ab9293f8c886889c94e64036a25d99cb45aec4f4c6306 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a reporting entity has the power to direct the activities of a VIE that most significantly impact the VIE's economic performance, then under the requirements of paragraph [810-10-25-38A](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A), that reporting entity also is required to determine whether it has the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. Reporting Entity A and Reporting Entity B both have the obligation to absorb losses and the right to receive benefits that could potentially be significant to the VIE through their equity interests. ##### [810-10-55-192](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-192) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:8fbd42350c8cd2044e944c58131b7f0de3c84971371197b097822093137395d2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On the basis of the specific facts and circumstances presented in this Case and the analysis performed, the VIE does not have a primary beneficiary because the power to direct the activities of the VIE that most significantly impact the VIE's economic performance, is, in fact, shared among multiple parties (Reporting Entity A and Reporting Entity B) such that no one party has the power to direct the activities of the VIE that most significantly impact the VIE's economic performance. ##### [810-10-55-193](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-193) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:fe3d61e4c4fcd989035ece643c185d81b070e532e7bafaff0f14dcecec254c60 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume that decisions about the manufacturing, distributing, and selling of the beverage do not require the consent of both Reporting Entity A and Reporting Entity B. Each reporting entity would be required to identify which activities most significantly impact the VIE's economic performance and determine whether it has the power to direct those activities. The party with the power to direct those activities would be the primary beneficiary of the VIE. Because decisions about these activities do not require the consent of both Reporting Entity A and Reporting Entity B, power would not be considered shared, and either Reporting Entity A or Reporting Entity B would be the primary beneficiary of the VIE, on the basis of which party has the power to direct the activities of the VIE that most significantly impact the VIE's economic performance. ##### [810-10-55-194](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-194) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:93afcb403c579bbdd1af9fe0545b7c8e3c01412fe492a1a63674528473fce7e6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume that Reporting Entity A and Reporting Entity B each manufacture, distribute, and sell the beverage in different locations, but decisions about these activities do not require the consent of both Reporting Entity A and Reporting Entity B. That is, each reporting entity is responsible for the same activities. Because decisions about these activities do not require the consent of both Reporting Entity A and Reporting Entity B, power would not be considered shared. ##### [810-10-55-195](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-195) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:7cab6b618c0f94276741c64472797be731a4238b510f37ebdec2e679f1d4e8eb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a reporting entity concludes that power is not shared but the activities that most significantly impact the VIE's economic performance are directed by multiple unrelated parties and the nature of the activities that each party is directing is the same, the party, if any, with the power over the majority of those activities shall be considered to have the power to direct the activities of a VIE that most significantly impact the VIE's economic performance. If no party directs the majority of those activities, the VIE does not have a primary beneficiary. ##### [810-10-55-196](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-196) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:72bcf0096c64894f99974c876b59b998b8993852f77360c5a303664e68232a38 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If Reporting Entity A or Reporting Entity B has power over the majority of those activities, then that party would be the primary beneficiary of the VIE. ##### [810-10-55-197](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-197) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:5ec312eb7ab3e2f5431e34cce3050e4466ec06d4a7ceae5b0c3667d82dd3b623 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume that Reporting Entity A and Reporting Entity B are each responsible for manufacturing the beverage, but Reporting Entity B is also responsible for all of the distributing and selling of the beverage, and decisions about the manufacturing, distributing, and selling of the beverage do not require the consent of both Reporting Entity A and Reporting Entity B. Each reporting entity would be required to identify which activities most significantly impact the VIE's economic performance and determine whether it has the power to direct those activities. The party with the power to direct those activities would be the primary beneficiary of the VIE. That is, power would not be considered shared, and either Reporting Entity A or Reporting Entity B would be the primary beneficiary of the VIE. However, if a reporting entity concludes that power is not shared but the activities that most significantly impact the VIE's economic performance are directed by multiple unrelated parties and the nature of the activities that each party is directing is the same, the party, if any, with the power over the majority of those activities shall be considered to have the power to direct the activities of a VIE that most significantly impact the VIE's economic performance. If no party directs the majority of those activities, the VIE does not have a primary beneficiary. ##### [810-10-55-198](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-198) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:4905aef4eb4fa7a6d0fcbaa7b1e119c336f200b9b6f0adc5ecbf5e5111a5d096 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Reporting Entity B may conclude that its power over some of the manufacturing of the beverage, combined with its power over all of the distributing and selling of the beverage, results in its being the party with the power to direct the activities that most significantly impact the VIE's economic performance. However, if Reporting Entity B were to conclude that the distributing and selling of the beverage did not significantly impact the economic performance of the VIE, then the primary beneficiary of the VIE would be the party, if any, with the power over the majority of the manufacturing of the beverage. ##### [810-10-55-199](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-199) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:4c7033800b87f69bb40fc38ecbe374c820f35bd48b39f1f3039ff53edac33bfb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A VIE is created by a furniture manufacturer and a financial investor to manufacture and sell wood furniture to retail customers in a particular geographic region. The VIE was created because the furniture manufacturer has no viable distribution channel in that particular geographic region. The VIE is established with $100 of equity, contributed by the furniture manufacturer, and $3 million of 10-year fixed-rate debt, provided by a financial investor. The furniture manufacturer establishes the sales and marketing strategy of the VIE, manages the day-to-day activities of the VIE, and is responsible for preparing and implementing the annual budget for the VIE. The VIE has a distribution contract with a third party that does not represent a variable interest in the VIE. Interest is paid to the fixed-rate debt holder (the financial investor) from operations before funds are available to the equity holder. The furniture manufacturer has guaranteed the fixed-rate debt to the financial investor. The debt agreement includes a clause such that if there is a materially adverse change that materially impairs the ability of the VIE and the furniture manufacturer to pay the debt, then the financial investor can take possession of all the assets of the VIE. An independent third party must objectively determine whether a materially adverse change has occurred on the basis of the terms of the debt agreement (an example of a materially adverse change under the debt agreement is the bankruptcy of the VIE). ##### [810-10-55-200](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-200) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:e2677ea102aae110dc9569c9be99d655c16c3ba405bc5a15275a7a49ee825e73 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To evaluate the facts and circumstances and determine which reporting entity, if any, is the primary beneficiary of a VIE, paragraph [810-10-25-38A](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A) requires that a reporting entity determine the purpose and design of the VIE, including the risks that the VIE was designed to create and pass through to its variable interest holders. In making this assessment, the variable interest holders of the VIE determined the following: 1. a The primary purpose for which the VIE was created was to enable the furniture manufacturer to extend its existing business line into a particular geographic region that lacked a viable distribution channel. 2. b The VIE was marketed to the financial investor as a fixed-rate investment in a retail operating entity, supported by the furniture manufacturer's expertise and guarantee. 3. c The furniture manufacturer's guarantee of the debt effectively transfers all of the operating risk of the VIE to the furniture manufacturer. ##### [810-10-55-201](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-201) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:8f2c4add72494683867d4abb8da0285c03fd0a2bab0344d40917fa82a76dbfba Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The furniture manufacturer and the financial investor (debt holder) are the variable interest holders in the VIE. ##### [810-10-55-202](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-202) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:72ad2be01b15418e67bda2c82e22c0f7879450b57a068d9f0dd1d6e9251db325 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [810-10-25-38B](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38B) requires that a reporting entity identify which activities most significantly impact the VIE's economic performance and determine whether it has the power to direct those activities. The economic performance of the VIE is most significantly impacted by the operations of the VIE because the operating cash flows of the VIE are used to repay the financial investor. Thus, the activities that most significantly impact the VIE's economic performance are the operating activities of the VIE. The furniture manufacturer has the ability to establish the sales and marketing strategy of the VIE and manage the day-to-day activities of the VIE. ##### [810-10-55-203](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-203) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:7bbb14921e6c3eab109d9615cb01a528810bc7f5e50ee3a6e34c773b6ebf98c5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The debt holder has the power to take possession of all of the assets of the VIE if there is a materially adverse change under the debt agreement. However, the debt holder's rights under the materially adverse change clause represent [protective rights](https://asc.understandingaccounting.org/glossary/p/#protective-rights-vie-definition "Rights designed to protect the interests of the party holding those rights without giving that party a controlling financial interest in the entity to which they relate. For example, they include any of the following: Approval or veto rights granted to other parties that do not affect the activities that most significantly impact the entity's economic performance. Protective rights often apply to fundamental changes in the activities of an entity or apply only in exceptional circumstances. Examples include both of the following: A lender might have rights that protect the lender from the risk that the entity will change its activities to the detriment of the lender, such as selling important assets or undertaking activities that change the credit risk of the entity. Other interests might have the right to approve a capital expenditure greater than a particular amount or the right to approve the issuance of equity or debt instruments. The ability to remove the reporting entity that has a controlling financial interest in the entity in circumstances such as bankruptcy or on breach of contract by that reporting entity. Limitations on the operating activities of an entity. For example, a franchise agreement for which the entity is the franchisee might restrict certain activities of the entity but may not give the franchisor a controlling financial interest in the franchisee. Such rights may only protect the brand of the franchisor."). Protective rights held by other parties do not preclude a reporting entity from having the power to direct the activities of a VIE that most significantly impact the VIE's economic performance. Protective rights are designed to protect the interests of the party holding those rights without giving that party a controlling financial interest in the VIE to which they relate. The debt holder's rights protect the interests of the debt holder; however, the VIE's economic performance is most significantly impacted by the activities over which the furniture manufacturer has power. The debt holder's protective rights do not prevent the furniture manufacturer from having the power to direct the activities of the VIE that most significantly impact the VIE's economic performance. ##### [810-10-55-204](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-204) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:9ceb908410c37bbc642de129799fb6a374e3545bc562c80c235a37578fbd4310 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a reporting entity has the power to direct the activities of a VIE that most significantly impact the VIE's economic performance, then under the requirements of paragraph [810-10-25-38A](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A), that reporting entity also is required to determine whether it has the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits that could potentially be significant to the VIE. The furniture manufacturer has the obligation to absorb losses that could potentially be significant through its equity interest and debt guarantee and the right to receive benefits that could potentially be significant through its equity interest. ##### [810-10-55-205](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:40304a1ec7554eb6b8c82b8e8db3cf4109da0dcb033b18d9d08fd7a14601d91d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On the basis of the specific facts and circumstances presented in this Case and the analysis performed, the furniture manufacturer would be the primary beneficiary of the VIE because: 1. a It is the variable interest holder with the power to direct the activities of the VIE that most significantly impact the VIE's economic performance. 2. b Through its equity interest and debt guarantee, it has the obligation to absorb losses of the VIE that could potentially be significant to the VIE and the right to receive benefits from the VIE that could potentially be significant to the VIE. ##### [810-10-55-205A](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205A) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:40fa5733086f7a99a9c2951e824d79812f65e8f60addeca4b63cb91107ca2059 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph moved to [810-10-55-205AJ](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AJ). ##### [810-10-55-205B](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205B) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:715304ffe9589111ded7616eb9f5a7a9459092183559b22ea03bc6afde434761 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph moved to [810-10-55-205AK](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AK). ##### [810-10-55-205C](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205C) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:7d04d0c7c6cb8c1e5035e097c215ecf779e8797528b7922325fa5d0686432d81 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph moved to [810-10-55-205AL](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AL). ##### [810-10-55-205D](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205D) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:31a0b101a3fa39ccf558aa9cb63448c831059aeadbe02948119cb7c76e914d85 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph moved to [810-10-55-205AM](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AM). ##### [810-10-55-205E](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205E) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:d27a8e34b5858047c2da031241b5bb7e46bf0c9e8e5c3fa25bd9ea545b16fea6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph moved to [810-10-55-205AN](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AN). ##### [810-10-55-205F](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205F) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:840ac42e038ea0e66f43965a833c9620ea88534117a15ad2a017fc84af953191 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph moved to [810-10-55-205AO](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AO). ##### [810-10-55-205G](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205G) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:6ad1385dd225c2b03b7811cfe24fa29a8dd412518a36b8e88b37790d514cd608 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph moved to [810-10-55-205AP](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AP). ##### [810-10-55-205H](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205H) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:db6bb1b0d19b230f16ecacd90221b37258b37a387bbd8135fd24fa5f902e0d3d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph moved to [810-10-55-205AQ](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AQ). ##### [810-10-55-205I](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205I) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:d05048a642f0041deb639128a3b1020ce583e7f1c2076775295c672fac2eb1d1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph moved to [810-10-55-205AR](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AR). ##### [810-10-55-205J](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205J) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:3f3ea655eafe384327feb9c938355097e3e0f2588cf3ba74af4b726e861ea218 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph moved to [810-10-55-205AS](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AS). ##### [810-10-55-205K](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205K) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:df929c1c6ee4aada79a8cb44815a3d5b152c78acd57be46ca423931dba407f43 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph moved to [810-10-55-205AT](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AT). ##### [810-10-55-205L](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205L) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:29d9820a7a25f97398163e57d54bf166e47f7a1d6786689d8a5cafe2e51467f3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A fund manager (general partner) creates and sells partnership interests in an investment fund (limited partnership) to external investors (limited partners). The partnership interests were marketed to the limited partners as an opportunity to generate returns by allowing the general partner to have discretion to determine how to invest the fund's assets provided that the investments are consistent with the defined parameters and objectives set forth in the limited partnership agreement. The general partner is not liable for any losses beyond the interest that the general partner owns in the fund. The general partner's ownership interests in the fund are expected to absorb more than an insignificant amount of the fund's expected losses and receive more than an insignificant amount of the fund's expected residual returns. ##### [810-10-55-205M](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205M) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:4e498f795ba207b0b446bed7a560909cc9e339922cd753d32ce11c1bf99e1cd8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The individual limited partners do not hold any substantive rights that would affect the [decision-making authority](https://asc.understandingaccounting.org/glossary/d/#decision-making-authority "The power to direct the activities of a legal entity that most significantly impact the entity's economic performance according to the provisions of the Variable Interest Entities Subsections of Subtopic 810-10.") of the general partner, but they can redeem their interests within particular limits set forth by the fund. The limited partners do not have either of the following abilities: 1. a The ability to remove the general partner from its decision-making authority or to dissolve (liquidate) the fund [without cause](https://asc.understandingaccounting.org/glossary/w/#without-cause "Without cause means that no reason need be given for the dissolution (liquidation) of the limited partnership or removal of the general partners.") (as distinguished from [with cause](https://asc.understandingaccounting.org/glossary/w/#with-cause "With cause generally restricts the limited partners' ability to dissolve (liquidate) the limited partnership or remove the general partners in situations that include, but that are not limited to, fraud, illegal acts, gross negligence, and bankruptcy of the general partners.")) 2. b The ability to block or participate in certain significant financial and operating decisions of the limited partnership that are made in the [ordinary course of business](https://asc.understandingaccounting.org/glossary/o/#ordinary-course-of-business "Decisions about matters of a type consistent with those normally expected to be addressed in directing and carrying out current business activities, regardless of whether the events or transactions that would necessitate such decisions are expected to occur in the near term. However, it must be at least reasonably possible that those events or transactions that would necessitate such decisions will occur. The ordinary course of business does not include self-dealing transactions."). ##### [810-10-55-205N](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205N) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:2841ff3921fba2b860b938790e5af9a2e50ff8b9a574ff011a16378aaf6fc3a1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The at-risk equity holders (as a group) do not have the ability to direct the activities that most significantly impact the economic performance of the fund on the basis of paragraph [810-10-55-205M(a) through (b)](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205M). Therefore, the fund is a VIE because the condition in paragraph [810-10-15-14(b)(1)(ii)](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-14) is met. ##### [810-10-55-205O](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205O) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:49b45586e30625e845a8cec2d0d292ae39092c40a0fa1d9dfb2044cd59cefa74 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The general partner is paid an annual fixed fee for the assets under management and a performance-based fee based on the fund's profits if it achieves a specified annual profit level. The annual and performance-based fees paid to the general partner are both of the following: 1. a Compensation for services provided and commensurate with the level of effort required to provide those services 2. b Part of a compensation arrangement that includes only terms, conditions, or amounts that are customarily present in arrangements for similar services negotiated at arm's length. ##### [810-10-55-205P](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205P) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:a36ea66e6ed0a3d34fccf5b9a4e79c16032dea9d7659a39b6f2eddad5b70a1e9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To evaluate the facts and circumstances and determine which reporting entity, if any, is the primary beneficiary of a VIE, paragraph [810-10-25-38A](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A) requires that a reporting entity determine the purpose and design of the VIE, including the risks that the VIE was designed to create and pass through to its variable interest holders. In making this assessment, the variable interest holders of the VIE determined all of the following: 1. a The fund is designed to provide limited partners with exposure to the risks and returns of the fund. 2. b The fund was marketed to potential investors as an investment in a pool of securities with exposure to specific enterprise risks, market liquidity, and general market volatility of the investments. The limited partners have granted the general partner power to direct the activities that most significantly impact the VIE's economic performance, which include management of their invested capital, on the basis of the prior performance of the general partner. 3. c The fee structure is designed to provide greater compensation to the general partner if the fund generates returns for the third-party limited partners that are above the specified profit level. The specified profit level is based on the activities of the fund and the nature of the fund's assets. While the general partner's fee structure may provide an incentive for the general partner to take additional risk to realize its performance-based fee, the annual and performance-based fees are designed to do all of the following: 1. 1 Provide compensation to the general partner for its services that is commensurate with the level of effort required to provide the services 2. 2 Include only terms, conditions, or amounts that are customarily present in arrangements for similar services negotiated at arm's length. ##### [810-10-55-205Q](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205Q) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:aa8cb95ed662ba02e0dd5890fc62c0f9e83c2a35f31dab7a20ce0ac6fb34b63a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The general partner and the limited partners are the variable interest holders in the VIE. The fees paid to the general partner (in its role as fund manager) represent a variable interest on the basis of a consideration of the conditions in paragraphs [810-10-55-37 through 55-38](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-37) , specifically paragraph [810-10-55-37(c)](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-37), because of the general partner holding ownership interests that are expected to absorb more than an insignificant amount of the fund's expected losses and receive more than an insignificant amount of the fund's expected residual returns. If the general partner was only receiving fees and did not hold ownership interests and if its related parties did not hold any variable interests in the VIE, then the fees would not be a variable interest. ##### [810-10-55-205R](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205R) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:c872ee546d1d0f14f9ee5f91c4f6299adade74c0c97cf7766f7666afc3aa0ffa Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [810-10-25-38B](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38B) requires that a reporting entity identify which activities most significantly impact the VIE's economic performance and determine whether it has the power to direct those activities. The economic performance of the VIE is most significantly impacted by the performance of the VIE's managed securities portfolio. Thus, the activities that most significantly impact the VIE's economic performance are the activities that significantly impact the performance of the managed securities portfolio. ##### [810-10-55-205S](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205S) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:596dd7e9675750da97255d37ff8a44898000142dffe2271f5c17e68bcc60516d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The general partner manages the operations of the VIE. Specifically, the general partner establishes the terms of the VIE, approves the assets to be purchased and sold by the VIE, and administers the VIE by monitoring the assets and ensuring compliance with the VIE's investment policies. The fact that the general partner was significantly involved with the creation of the VIE does not, in isolation, result in the general partner being the primary beneficiary of the VIE. However, the fact that the general partner was involved with the creation of the VIE may indicate that the general partner had the opportunity and the incentive to establish arrangements that result in the general partner being the variable interest holder with the power to direct the activities that most significantly impact the VIE's economic performance. ##### [810-10-55-205T](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205T) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:997abc5f0760114e62ea822202719c758d8bfbc3259b2b9d91d46f6dd8d67299 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The limited partners of the VIE have no voting rights and no other rights that provide them with the power to direct the activities that most significantly impact the VIE's economic performance. ##### [810-10-55-205U](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205U) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:b6ab0baafc55706bccd7c5508a90823d40b473f0186e6a4721d604518033da93 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a reporting entity has the power to direct the activities of a VIE that most significantly impact the VIE's economic performance, then under the requirements of paragraph [810-10-25-38A](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A), that reporting entity also is required to determine whether it has the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The annual and performance-based fees paid to the general partner are both of the following: 1. a Compensation for services provided and commensurate with the level of effort required to provide those services 2. b Part of a compensation arrangement that includes only terms, conditions, or amounts that are customarily present in arrangements for similar services negotiated at arm's length. Therefore, the annual and performance-based fees meet the criteria in paragraph [810-10-25-38H](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38H) and should not be considered for purposes of evaluating the characteristic in paragraph [810-10-25-38A(b)](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A). Additionally, the general partner, through its investment in the fund, has the obligation to absorb losses of the VIE that could potentially be significant to the VIE and the right to receive benefits from the VIE that could potentially be significant to the VIE. ##### [810-10-55-205V](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205V) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:4206e49b2afe901903024b8d0e1ecbdbdd630ffd99ad0637effba896a7bed135 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On the basis of the specific facts and circumstances presented in this Case and the analysis performed, the general partner would be the primary beneficiary of the VIE because: 1. a It is the variable interest holder with the power to direct the activities of the VIE that most significantly impact the VIE's economic performance. 2. b Through its investment in the fund, it has the obligation to absorb losses of the VIE that could potentially be significant to the VIE and the right to receive benefits from the VIE that could potentially be significant to the VIE. ##### [810-10-55-205W](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205W) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:d3ab529e1185cbe3fcfb1b003e4899cb3ad68a1aa2cbb607893ef76eb0032c0e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A fund manager (general partner) creates and sells partnership interests in an investment fund (limited partnership) to external investors (limited partners). The partnership interests were marketed to the investors as an opportunity to generate significant returns by allowing the general partner to have discretion to determine how to invest the fund's assets provided that the investments are consistent with the defined parameters and objectives set forth in the limited partnership agreement. None of the limited partners are related parties of the general partner. The general partner does not hold any interests in the fund, and the general partner is not liable for any losses in the fund. Several employees of the general partner have interests in the fund. These employees chose to purchase interests in the fund and financed the purchases themselves. ##### [810-10-55-205X](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205X) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:ee78807d4668c8b7a50437a1caca1ceb74b02654536d4521698a8fc15684ac3f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The annual and performance-based fees paid to the general partner are both of the following: 1. a Compensation for services provided and commensurate with the level of effort required to provide those services 2. b Part of a service arrangement that includes only terms, conditions, or amounts that are customarily present in arrangements for similar services negotiated at arm's length. Additionally, the general partner has no related parties with interests in the fund that individually, or in the aggregate, would absorb more than an insignificant amount of the fund's expected losses or receive more than an insignificant amount of the fund's expected residual returns. For purposes of this assessment, the general partner did not include its employees' interests in the fund because the general partner did not finance those interests; therefore, the general partner has neither a direct nor an indirect economic interest in the fund. The general partner's annual and performance-based fees do not represent a variable interest on the basis of a consideration of the conditions in paragraphs [810-10-55-37 through 55-38](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-37) . ##### [810-10-55-205Y](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205Y) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:a4c31e2ddcd6c5b47c12a5a4f323deff1d818e31a4b039177d1ead62fc116ee1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On the basis of the specific facts and circumstances presented in this Case and the analysis performed, the general partner does not have a variable interest in the fund. The general partner has no further consolidation analysis to perform. ##### [810-10-55-205Z](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205Z) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:2ef09f2a5633dce7838492bcd9eeed2ca34f4d9ec4213872962572f3ec9528f3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Company B, an affiliate of Company A, owns certain intellectual property related to eCommerce activities. Company A establishes a VIE to which Company A provides an exclusive services and asset licensing agreement. The VIE obtains access to the intellectual property owned by Company B. Company A agrees to provide strategic and technical services to the VIE and contracts with Company B to perform these services. Company B, Company A, and the VIE share the same senior management. ##### [810-10-55-205AA](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AA) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:6a32e211016597bce82ec995128d70f00940a2615b5147ddbd2c234cdd477692 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because of regulatory restrictions, Company A and its investors are precluded from owning equity in the VIE. The VIE is domiciled in a different country, which prohibits foreign investment through equity. ##### [810-10-55-205AB](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AB) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:2e43f94c8d956b239bafc7cd9f345b009b7c95a44058a5fd0e05c78c2cc6c088 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The equity investors in the VIE, who are the senior management of Company A, have rights that are limited to only administrative matters. ##### [810-10-55-205AC](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AC) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:7f8b738ecc4df14bde4a64ff99d6ff9726b33de5cf547a559c934cb144917787 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Company A's compensation for the services and asset licensing agreement is the net income of the VIE, but not the VIE's net losses. The fees paid to Company A are both of the following: 1. a Compensation for services provided but not commensurate with the level of effort required to provide those services 2. b Part of a service arrangement that does not include only terms, conditions, or amounts that are customarily present in arrangements for similar services negotiated at arm's length. ##### [810-10-55-205AD](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AD) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:6c3cd42c07861fe2b6f9890bbab1eedbe11417da3bddaca4dd6b0410a45f01a0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To evaluate the facts and circumstances and determine which reporting entity, if any, is the primary beneficiary of a VIE, paragraph [810-10-25-38A](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A) requires that a reporting entity determine the purpose and design of the VIE, including the risks that the VIE was designed to create and pass through to its variable interest holders. In making this assessment, the variable interest holders of the VIE determined the following: 1. a The primary purpose for the creation of the VIE was to bypass foreign investment restrictions and enable foreign investors (through their ownership of Company A) to participate indirectly in restricted sectors in which Company B operates through a series of contractual arrangements. 2. b Company A will receive all of the net income but none of the net losses of the VIE. 3. c The equity investors, the senior management of Company A, are exposed to the net losses of the VIE through their equity investments. ##### [810-10-55-205AE](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AE) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:528fe34e4ba208e521abb8dce1f01ae6b6f4e1cb93374d17835e95362ab7fa42 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Company A and the equity investors of the VIE are the variable interest holders in the VIE. The fees paid to Company A represent a variable interest on the basis of consideration of the conditions in paragraphs [810-10-55-37 through 55-38](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-37) , specifically paragraph [810-10-55-37(a) and (d)](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-37). ##### [810-10-55-205AF](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AF) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:5c0466730363406cf670e2d842340cb01c3ac7ed5e44b360ae705180a9ca47a5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [810-10-25-38B](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38B) requires that a reporting entity identify which activities most significantly impact the VIE's economic performance and determine whether it has the power to direct those activities. The economic performance of the VIE is significantly impacted by the performance of Company B. Company A, through its contractual arrangements, has the power to direct the activities that most significantly impact the VIE's economic performance. ##### [810-10-55-205AG](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AG) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:3d831b20db753acfe347f05c770390f6f34331c86a32373aa223cbf4ecffff49 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The equity investors of the VIE have no voting rights and no other rights that provide them with the power to direct the activities that most significantly impact the VIE's economic performance. ##### [810-10-55-205AH](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AH) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:1c3e63a58683b86d2d03d6307531dee7b219adb6930ec33a66a47f23013d007c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a reporting entity has the power to direct the activities of a VIE that most significantly impact the VIE's economic performance, then under the requirements of paragraph [810-10-25-38A](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A), that reporting entity also is required to determine whether it has the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. Company A, through its fee arrangements, receives benefits that could potentially be significant to the VIE. The fees paid to Company A are both of the following: 1. a Compensation for services provided but not commensurate with the level of effort required to provide those services 2. b Part of a service arrangement that does not include only terms, conditions, or amounts that are customarily present in arrangements for similar services negotiated at arm's length. Therefore, the fees do not meet the criteria in paragraph [810-10-25-38H](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38H), and they should be considered for purposes of paragraph [810-10-25-38A(b)](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-38A). ##### [810-10-55-205AI](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AI) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:13b563bc7ae2c83b62f5567b85b1105879a0f17d4b9b4c7e298ed14b12289597 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On the basis of the specific facts and circumstances presented in this Case and the analysis performed, Company A would be deemed to be the primary beneficiary of the VIE because: 1. a It is the variable interest holder with the power to direct the activities of the VIE that most significantly impact the VIE's economic performance. 2. b Through fee arrangements, it has the right to receive benefits from the VIE that could potentially be significant to the VIE. ##### [810-10-55-205AJ](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AJ) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:88ccd961b8d0077f2724376f0a2e851ce517db040ed2afea4b864134ab834af6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2018-17](https://asc.understandingaccounting.org/updates/asu-2018-17/). ##### [810-10-55-205AK](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AK) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:3d0cb8cb732bb3d35972d74fdc93c616710fe221fc6a7a5aea14fffd8a5276d2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2018-17](https://asc.understandingaccounting.org/updates/asu-2018-17/). ##### [810-10-55-205AL](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AL) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:39e43480f299bf9314313002cc308dc9ee06addee7346e32dd8ed1777bad5d92 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2018-17](https://asc.understandingaccounting.org/updates/asu-2018-17/). ##### [810-10-55-205AM](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AM) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:6873ef288fa67636a8ebc728d3b28b13a59d37288960f73956eb7cab45415fa8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2018-17](https://asc.understandingaccounting.org/updates/asu-2018-17/). ##### [810-10-55-205AN](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AN) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:765251fb880d159409893674ae84f56f70de3bfaef49f0dce810f3bb29bd292c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2018-17](https://asc.understandingaccounting.org/updates/asu-2018-17/). ##### [810-10-55-205AO](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AO) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:fa2e8a220308873d157e3cb79e586ea3b280cb08420db928a42d3e5a0d0ace24 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2018-17](https://asc.understandingaccounting.org/updates/asu-2018-17/). ##### [810-10-55-205AP](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AP) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:dd79776c99758e894a8d9c5571e01a19e1fc2fbf9927b1d1400a5e39d0a97d25 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2018-17](https://asc.understandingaccounting.org/updates/asu-2018-17/). ##### [810-10-55-205AQ](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AQ) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:ec3c6d10bb501efce0fbe24f5098575fb6d4a9567c71c501c77ad8e799b8c078 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2018-17](https://asc.understandingaccounting.org/updates/asu-2018-17/). ##### [810-10-55-205AR](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AR) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:2f6d3b4f6a53a2574cf7e266049f8bc3440589ef4cc6e9abe76e7f9017fb8558 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2018-17](https://asc.understandingaccounting.org/updates/asu-2018-17/). ##### [810-10-55-205AS](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AS) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:f2b7eec2712a2edf6d3a9c707d3043656e479061da2f4404bd82d23274d56324 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A reporting entity has determined that it must consolidate a [collateralized financing entity](https://asc.understandingaccounting.org/glossary/c/#collateralized-financing-entity "A variable interest entity that holds financial assets, issues beneficial interests in those financial assets, and has no more than nominal equity. The beneficial interests have contractual recourse only to the related assets of the collateralized financing entity and are classified as financial liabilities. A collateralized financing entity may hold nonfinancial assets temporarily as a result of default by the debtor on the underlying debt instruments held as assets by the collateralized financing entity or in an effort to restructure the debt instruments held as assets by the collateralized financing entity. A collateralized financing entity also may hold other financial assets and financial liabilities that are incidental to the operations of the collateralized financing entity and have carrying values that approximate fair value (for example, cash, broker receivables, or broker payables).") under this Topic and is eligible to and has elected to apply the measurement alternative in paragraphs [810-10-30-10 through 30-15](https://asc.understandingaccounting.org/asc/810/10/#810-10-30-10) and [810-10-35-6 through 35-8](https://asc.understandingaccounting.org/asc/810/10/#810-10-35-6) . The reporting entity retains certain [beneficial interests](https://asc.understandingaccounting.org/glossary/b/#beneficial-interests "Rights to receive all or portions of specified cash inflows received by a trust or other entity, including, but not limited to, all of the following: Senior and subordinated shares of interest, principal, or other cash inflows to be passed-through or paid-through Premiums due to guarantors Commercial paper obligations Residual interests, whether in the form of debt or equity.") in the collateralized financing entity as compensation for its services and also retains other beneficial interests. Since initial consolidation, the collateralized financing entity has not settled any of the outstanding beneficial interests related to compensation for services. The collateralized financing entity's only assets are corporate debt obligations, and its only liabilities (the beneficial interests issued by the collateralized financing entity) are thinly traded. The reporting entity determines that the fair value of the collateralized financing entity's financial assets is more observable than the fair value of its financial liabilities. Because the fair value of the financial assets is more observable, the reporting entity determines the amount of the financial liabilities of the collateralized financing entity (other than those beneficial interests retained by the reporting entity) as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-282F0A76-1D89-480B-8B55-ADBF139814DB-low.gif) "June 20, 20X4 (Measurement upon Initial Consolidation)" "December 31, 20X4" Fair value of the financial assets(a) $100 $105 Plus: Carrying value of the nonfinancial assets(b) 5 5 assets(a) Total value of the assets of the collateralized financing entity 105 110 Less: Fair value of the beneficial interests retained by the reporting entity (other than those that represent compensation for services)(c) 10 12 Less: Carrying value of the beneficial interests related to compensation for services(d) 6 8 Financial liabilities related to the collateralized financing entity in consolidation 89 90 Net assets related to the collateralized financing entity(e) $16 $20 Change in the net assets related to the collateralized financing entity(f) $4 Changes in the beneficial interests attributable to the reporting entity(f) $4 (a) "The financial assets include $5 and $10 at June 20, 20X4, and December 31, 20X4, respectively, of cash held by the collateralized financing entity. The carrying value of the cash and cash equivalents is equal to the fair value." (b) "To determine the financial liabilities of the collateralized financing entity, the reporting entity uses the sum of the fair value of the financial assets and the carrying value of the nonfinancial assets. The nonfinancial assets of the collateralized financing entity are measured in accordance with other Topics." (c) This amount represents the fair value of the beneficial interests retained by the reporting entity (other than those that represent compensation for services) determined in accordance with Topic 820. This amount is not included in the financial liabilities of the consolidated reporting entity because it does not represent an amount due to third-party beneficial interest holders. (d) The reporting entity has rights to a portion of the beneficial interests through its compensation arrangement. That amount is measured in accordance with other Topics. That amount is not included in the financial liabilities of the consolidated reporting entity because it does not represent an amount due to third-party beneficial interest holders. (e) "The net assets related to the collateralized financing entity equal the reporting entity's beneficial interests (that is, the sum of the fair value of the beneficial interests retained \[other than those that represent compensation\] and the carrying value of beneficial interests that represent compensation for services). The change in the net assets is included in the reporting entity's consolidated net income (loss)." (f) "The change in the net assets related to the collateralized financing entity equals the change in the value of the beneficial interests retained by the reporting entity, including the change in the carrying value of the beneficial interests representing compensation for services." ##### [810-10-55-205AT](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AT) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:4886e2feabce71d746b7292c4775d163877208b350437e2b3f1dc1c667a7cba7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A reporting entity has determined that it must consolidate a [collateralized financing entity](https://asc.understandingaccounting.org/glossary/c/#collateralized-financing-entity "A variable interest entity that holds financial assets, issues beneficial interests in those financial assets, and has no more than nominal equity. The beneficial interests have contractual recourse only to the related assets of the collateralized financing entity and are classified as financial liabilities. A collateralized financing entity may hold nonfinancial assets temporarily as a result of default by the debtor on the underlying debt instruments held as assets by the collateralized financing entity or in an effort to restructure the debt instruments held as assets by the collateralized financing entity. A collateralized financing entity also may hold other financial assets and financial liabilities that are incidental to the operations of the collateralized financing entity and have carrying values that approximate fair value (for example, cash, broker receivables, or broker payables).") under this Topic and is eligible to and has elected to apply the measurement alternative in paragraphs [810-10-30-10 through 30-15](https://asc.understandingaccounting.org/asc/810/10/#810-10-30-10) and [810-10-35-6 through 35-8](https://asc.understandingaccounting.org/asc/810/10/#810-10-35-6) . The reporting entity retains certain [beneficial interests](https://asc.understandingaccounting.org/glossary/b/#beneficial-interests "Rights to receive all or portions of specified cash inflows received by a trust or other entity, including, but not limited to, all of the following: Senior and subordinated shares of interest, principal, or other cash inflows to be passed-through or paid-through Premiums due to guarantors Commercial paper obligations Residual interests, whether in the form of debt or equity.") in the collateralized financing entity as compensation for its services and also retains other beneficial interests. Since initial consolidation, the collateralized financing entity has not settled any of the outstanding beneficial interests related to compensation for services. The collateralized financing entity's only assets are mortgages with primarily unobservable inputs, and its only liabilities are beneficial interests issued in those assets. The beneficial interests of the collateralized financing entity are frequently traded, although not in an active market. Because the fair value of the financial liabilities is more observable, the reporting entity determines the amount of the financial assets of the collateralized financing entity as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-B3278BD5-11CC-476D-AF7C-EFEA4E0F2176-low.gif) "June 20, 20X4 (Measurement upon Initial Consolidation)" "December 31, 20X4" Fair value of the financial liabilities (other than beneficial interests retained by the reporting entity)(a) $90 $95 Plus: Fair value of the beneficial interests retained by the reporting entity (other than those that represent compensation for services)(b) 10 12 Plus: Carrying value of the beneficial interests related to compensation for services(c) 6 8 Total value of the financial liabilities of the collateralized financing entity(d) 106 115 Less: Carrying value of the nonfinancial assets(e) 5 5 Financial assets of the collateralized financing entity 101 110 Net assets related to the collateralized financing entity(f) $16 $20 Change in the net assets related to the collateralized financing entity(g) $4 Changes in the beneficial interests attributable to the reporting entity(g) $4 (a) "This amount reflects the fair value of the beneficial interests held by third parties in the consolidated financial statements. While any beneficial interests retained by the reporting entity are financial liabilities of the collateralized financing entity, such amounts are eliminated in consolidation because they do not represent amounts due to third-party beneficial interest holders. This amount also includes $6 and $8 at June 20, 20X4, and December 31, 20X4, respectively, of payables held by the collateralized financing entity for securities purchased but not yet settled. The carrying amount of those payables approximates fair value." (b) This amount represents the fair value of the beneficial interests retained by the reporting entity (other than those that represent compensation for services). (c) The reporting entity holds beneficial interests that represent compensation for services. This amount is measured in accordance with other Topics. (d) "The total liabilities of the collateralized financing entity include the beneficial interests held by third parties, the beneficial interests retained by the reporting entity, and any beneficial interests related to compensation. The reporting entity's beneficial interests (including those related to compensation) are financial liabilities of the collateralized financial entity that are eliminated in consolidation." (e) The nonfinancial assets of the collateralized financing entity are measured in accordance with other Topics. (f) "The net assets related to the collateralized financing entity equal the reporting entity's beneficial interests (that is, the sum of the fair value of the beneficial interests retained \[other than those that represent compensation\] and the carrying value of beneficial interests that represent compensation for services). The change in the net assets is included in the reporting entity's consolidated net income (loss)." (g) "The change in the net assets related to the collateralized financing entity equals the change in the value of the beneficial interests attributable to the reporting entity, including the change in the carrying value of the beneficial interests representing compensation for services." ##### [810-10-55-205AU](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AU) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:c2826d730646a68e4c88e4253356a1cfa7484065e444f99ecf6da9aa667cbea6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Examples illustrate the application of the guidance in paragraphs [810-10-15-17AD(a)](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-17AD) and [810-10-15-17AE](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-17AE) on determining whether common control exists solely for purposes of applying the accounting alternative: 1. a Accounting Alternative—Common Control Exists (Example 11) 2. b Accounting Alternative—Common Control Does Not Exist (Example 12). ##### [810-10-55-205AV](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AV) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:0e3212c2e636b958c268cc8066e658602657f1fe6ddb06f7464639d3b47748b7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume the following: 1. a Entities A (Parent), B (the reporting entity), C (a legal entity), and E (a legal entity) are all private companies. 2. b Entity A holds a majority of the voting shares of Entities B and C. 3. c Entity C holds a majority of the voting shares of Entity E. ##### [810-10-55-205AW](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AW) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:0eb72f475e5a9623c10fdb4fa68c3c9c13bed60bb5e151ce59aba54501ea80c2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Based on the guidance in paragraph [810-10-25-1](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-1), Entity A has a controlling financial interest in Entities B and C because it directly holds a majority of the voting shares in those entities and no circumstances indicate that control does not rest with the majority owner. Entity C also has a controlling financial interest in Entity E because it directly holds a majority of the voting shares in this entity. Therefore, Entity A controls Entity E through Entity C's controlling financial interest in Entity E. For the purposes of applying paragraph [810-10-15-17AD(a)](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-17AD), Entities B, C, and E are under common control of Entity A. Assuming the other criteria in paragraph [810-10-15-17AD](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-17AD) are met, Entity B (the reporting entity) is eligible to apply the accounting alternative to Entity C and Entity E. ##### [810-10-55-205AX](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AX) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:682d931b6db4067ac616a63803c876c94dd4aa348a582fe5087c19af497c0051 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If Entity B directly holds a majority of the voting shares of Entity E and no circumstances indicate that control does not rest with the majority owner, Entity B would not be able to apply the accounting alternative to Entity E because paragraph [810-10-15-17AD(d)](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-17AD) would not be met. In other words, Entity B would conclude that it holds a controlling financial interest in Entity E when considering only the General Subsections of this Topic (and not the Variable Interest Entities Subsections). ##### [810-10-55-205AY](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AY) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:9728f2397dd0cfb162eb4d13810ada1e26bd8fced975d296265d641564b2e064 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume the following: 1. a Entities A (Parent), B (the reporting entity), C (a legal entity), and E (a legal entity) are all private companies. 2. b Entity A holds a majority of the voting shares of Entities B and C. 3. c Entities A, B, and C do not hold any voting shares of Entity E (directly or indirectly). However, Entity A has extended subordinated financial support (in the form of debt) to Entity E. ##### [810-10-55-205AZ](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205AZ) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:6ce9b66dcae228bb6f19f1a6f5c7aa633e607c31b5998cb284753e824b6e4fed Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Based on the guidance in paragraph [810-10-25-1](https://asc.understandingaccounting.org/asc/810/10/#810-10-25-1), Entity A has a controlling financial interest in Entities B and C because it directly holds a majority of the voting shares in those entities and no circumstances indicate that control does not rest with the majority owner. Therefore, Entities B and C are under common control of Entity A. However, Entity E is not considered to be under common control of Entity A for the purposes of applying paragraph [810-10-15-17AD(a)](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-17AD) because Entity A does not directly or indirectly hold a majority of Entity E's voting shares. Moreover, even if Entity E is a VIE and Entity A is its primary beneficiary, Entity E is not considered to be under common control of Entity A for purposes of applying the guidance in paragraph [810-10-15-17AD(a)](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-17AD). Accordingly, Entity B (the reporting entity) is precluded from applying the accounting alternative to Entity E. ##### [810-10-55-205BA](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205BA) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:da7d86ecce62c33ce8c7c8a0b71454239c5d6a7df5897e33933a91924e68dd1a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Examples illustrate the application of the guidance in paragraph [810-10-15-17AD](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-17AD) on determining whether a reporting entity that is a private company can elect the accounting alternative not to apply VIE guidance to a legal entity under common control: 1. a Common control leasing arrangement (Example 13) 2. b Car Company (reporting entity) under common control with Engine Company, Tire Company, and Purse Company (Example 14). ##### [810-10-55-205BB](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205BB) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:df1a83f4845d4942f74772fce7b68370d0660a647ed400c33178864b93a0f88c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume the following: 1. a The sole owner (not a public business entity) of Manufacturing Entity (a private company) also is the sole owner of Lessor Entity (a private company). 2. b The reporting entity is Manufacturing Entity. 3. c Manufacturing Entity leases its manufacturing facility from Lessor Entity. 4. d Lessor Entity owns no assets other than the manufacturing facility being leased to Manufacturing Entity. 5. e Manufacturing Entity pays property taxes on behalf of Lessor Entity and maintains the manufacturing facility. 6. f The sole owner of both entities has provided a guarantee of Lessor Entity's mortgage as required by the external lender. 7. g Manufacturing Entity has elected to apply the accounting alternative described in paragraph [810-10-15-17AD](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-17AD). ##### [810-10-55-205BC](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205BC) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:21f82346005b3ae4142defaa1b66a57e16b3cbc87561cfad3971682ec8768d7d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Manufacturing Entity meets all the criteria in paragraph [810-10-15-17AD](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-17AD), and, as a result of its elected accounting policy, Manufacturing Entity would apply the accounting alternative to Lessor Entity on the basis of the following: 1. a Manufacturing Entity (a private company) and Lessor Entity are under common control. 2. b Manufacturing Entity and Lessor Entity are under common control of an individual that is not a public business entity. 3. c Lessor Entity is not a public business entity. 4. d Manufacturing Entity does not directly or indirectly hold a controlling financial interest in Lessor Entity when considering only the General Subsections of this Topic. Manufacturing Entity should disclose the required information specified in paragraphs [810-10-50-2AG through 50-2AI](https://asc.understandingaccounting.org/asc/810/10/#810-10-50-2AG) unless Lessor Entity is consolidated through accounting guidance other than VIE guidance. ##### [810-10-55-205BD](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205BD) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:dbc66f5c82da9f6d07ceac8c837e247d9523e13e5122277ffedf98fe09233769 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume the following: 1. a Reporting entity Car Company (Car Co.), a private company, produces vehicles for sale. 2. b Car Co. has elected to apply the accounting alternative described in paragraph [810-10-15-17AD](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-17AD). 3. c The sole owner (not a public business entity) of Car Co. also is the sole owner of Engine Company (Engine Co.), Tire Company (Tire Co.), and Purse Company (Purse Co.). Therefore, Car Co., Engine Co., Tire Co., and Purse Co. are considered to be under common control. Only Purse Co. meets the definition of a public business entity. 4. d All companies under common control have third-party debt, and each respective company has pledged its assets as collateral for that debt. The third-party debt on each respective company is personally guaranteed by the owner. 5. e Engine Co. assumptions: 1. 1 Engine Co. was created by the owner to vertically integrate the supply chain for Car Co.'s production of vehicles. 2. 2 Engine Co. produces engines based on Car Co.'s design specifications. 3. 3 Engine Co. is the sole engine supplier for Car Co., and substantially all of Engine Co.'s production is sold to Car Co. 4. 4 No other engines on the market could replace the engines supplied by Engine Co. 5. 5 During 20XX, Car Co. charged Engine Co. $225,684 for management and other services rendered. 6. 6 During 20XX, Car Co. purchased $9,482,513 in engines from Engine Co. 7. 7 Engine Co. has an outstanding loan for $600,000 due to Car Co. that is unsecured and accrues interest at 6 percent. This loan is subordinated to all other debt, and there are no specific repayment terms. 8. 8 Historically, Car Co. has provided funding to Engine Co. at the request of the owner even though there is no existing contractual requirement to do so. 9. 9 Total book value of Engine Co.'s liabilities is $2,459,127 as of December 31, 20XX. 6. f Tire Co. assumptions: 1. 1 Tire Co. was created by the owner to vertically integrate the supply chain for the Car Co.'s production of vehicles. 2. 2 Tire Co. sells a majority of its tires to Car Co. 3. 3 Many substitutes on the market could replace the tires provided by Tire Co. 4. 4 During 20XX, Car Co. charged Tire Co. $74,568 for management and other services rendered. 5. 5 During 20XX, Car Co. purchased $3,792,929 of tires from Tire Co. 6. 6 Tire Co. has an outstanding loan for $200,000 due to Car Co. that is unsecured and accrues interest at 6 percent. This loan is subordinated to all other debt, and there are no specific repayment terms. 7. 7 Other than the $200,000 loan, Car Co. has never provided any other additional funding to Tire Co. and is not contractually obligated to do so. 8. 8 Total book value of Tire Co.'s liabilities is $1,250,000 as of December 31, 20XX. 7. g Purse Co. assumptions: 1. 1 Purse Co. sells high-end designer purses. 2. 2 No significant transactions or arrangements exist between Purse Co. and the other entities under common control. 3. 3 Car Co. did not provide any management services to Purse Co. 4. 4 Car Co. has never provided any additional funding to Purse Co. and is not contractually obligated to do so. 5. 5 Total book value of Purse Co.'s liabilities is $1,000,000 as of December 31, 20XX. ##### [810-10-55-205BE](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205BE) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:28ab44456dc39d8b6898da765ec55823dbf92905f0ff17ba70804fd7d2a1b23e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Car Co. meets all the criteria in paragraph [810-10-15-17AD](https://asc.understandingaccounting.org/asc/810/10/#810-10-15-17AD) for Engine Co. and Tire Co. and can elect the accounting alternative. As a result of its elected accounting policy, Car Co. would apply the accounting alternative to Engine Co. and Tire Co. on the basis of the following: 1. a Car Co. (a private company), Engine Co., and Tire Co. are under common control. 2. b Car Co., Engine Co., and Tire Co. are under common control of an individual that is not a public business entity. 3. c Neither Engine Co. nor Tire Co. is a public business entity. 4. d Car Co. does not directly or indirectly hold a controlling financial interest in Engine Co. or Tire Co. when considering only the General Subsections of this Topic. Although Purse Co. would not qualify for the accounting alternative because it is a public business entity, Car Co. does not consider Purse Co. to be a legal entity that needs to be assessed for consolidation because Car Co. has no variable interest in Purse Co. Therefore, Car Co. would not provide any disclosures related to Purse Co. under this accounting alternative. ##### [810-10-55-205BF](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205BF) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:0e235f1e1d85c4092c5fd201086e5180f15a3f257967366a5a3dac081fd92373 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Based on the fact pattern described in paragraphs [810-10-55-205BD through 55-205BE](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-205BD), the following disclosures may satisfy the provisions in paragraphs [810-10-50-2AG through 50-2AI](https://asc.understandingaccounting.org/asc/810/10/#810-10-50-2AG): 1. a Engine Company, Inc. (Engine Co.): Engine Co. and Car Company, Inc. (the Company) are under common control. Engine Co. was created by the owner to vertically integrate the supply chain for the Company's production of vehicles. The Company's ability to generate profits depends largely on Engine Co. Engine Co. produces engines for the Company's vehicles in accordance with the Company's design specifications for those engines. Substantially all of Engine Co.'s production is sold to the Company, and Engine Co. is the sole supplier of engines to the Company. No other engines on the market could replace the engines supplied by Engine Co. The Company provides Engine Co. with management and other services (including, but not limited to, accounting, billing, and administrative duties) for which it charged a management fee of $225,684 in 20XX. The Company purchased $9,482,513 of engines during 20XX from Engine Co. Engine Co. has an outstanding loan in the amount of $600,000 due to the Company that is unsecured and accrues interest at 6 percent. The loan is subordinated to all other debt, and no specific repayment terms exist. 2. b Tire Company, Inc. (Tire Co.): Tire Co. and the Company are under common control. Tire Co. was created by the owner to vertically integrate the supply chain for the Company's production of vehicles. Tire Co. produces tires for the Company's vehicles and sells a majority of those tires to the Company. The Company provides no design specifications for the tires, and many substitutes on the market could replace the tires that Tire Co. provides. The Company provides Tire Co. with management and other services (including, but not limited to, accounting, billing, and administrative duties) for which it charged a management fee of $74,568 in 20XX. Car Co. purchased $3,792,929 of tires during 20XX from Tire Co. Tire Co. has an outstanding loan in the amount of $200,000 due to the Company that is unsecured and accrues interest at 6 percent. The loan is subordinated to all other debt, and no specific repayment terms exist. 3. c Both Engine Co. and Tire Co. have third-party debt, and both companies have their assets pledged as collateral for that debt. The owner of the Company, Engine Co., and Tire Co. has personally guaranteed the third-party debt of the Company, Engine Co., and Tire Co. 4. d In addition to the $600,000 loan, the Company historically has been required to provide funds to Engine Co. at the request of the common owner. The Company believes that its maximum financial exposure to loss related to Engine Co. could equal all of Engine Co.'s liabilities. The book value of Engine Co.'s liabilities is $2,459,127 as of December 31, 20XX. 5. e Other than the $200,000 loan, the Company has never provided any other additional funding to Tire Co. and is not contractually obligated to do so. The Company believes that its maximum financial exposure related to Tire Co. is limited to the $200,000 loan outstanding and any accrued interest as of December 31, 20XX. ### Consolidation of Entities Controlled by Contract #### Implementation Guidance ##### [810-10-55-206](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-206) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:b7c8bfade3e8bdccba2b33861eaeff58c9edf6926f2a5bb336d7986c9af15ecd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The decision tree that follows illustrates the analysis to determine whether a physician practice management entity shall consolidate a physician practice. The decision tree contains the term, control, and financial interest requirements, as those requirements are affected by the interpretive guidance that is presumptive in nature. The other interpretive guidance shall also be considered when working through the decision tree. If the answer to any question in the decision tree is other than as shown by the arrows, then the physician practice management entity should not consolidate the physician practice. Use of the decision tree is not a substitute for application of the Consolidation of Entities Controlled by Contract Subsections, including all the interpretive guidance. The following is an illustration of the analysis to determine whether a physician practice management entity should consolidate a physician practice. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-F2A28022-240D-4356-B01F-8307730CD1E6-low.gif) #### Physician Practice Management Entity Shareholder Fact Patterns ##### [810-10-55-207](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-207) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:ecfe4d220ede61f42b0447ba891a432ac0c3bfb74f0af8608b3a8a6634e3e968 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Situations involving non-nominee and [nominee shareholder](https://asc.understandingaccounting.org/glossary/n/#nominee-shareholder "One or more shareholders whose relationship with the physician practice management entity (which can be either the physician practice management entity itself or its controlled subsidiaries) perpetually has all of the following characteristics: Time Frame: The physician practice management entity can at all times establish or effect a change in the nominee shareholder. The physician practice management entity can cause a change in the nominee shareholder an unlimited number of times, that is, changing the nominee shareholder one or more times does not affect the physician practice management entity's ability to change the nominee shareholder again and again. Discretion: The physician practice management entity has sole discretion without cause to establish or change the nominee shareholder. The physician practice management entity can name anyone as a new nominee shareholder (that is, the physician practice management entity's choice of an eligible nominee is not limited). Impact: The physician practice management entity and the nominally owned entity incur no more than a nominal cost to cause a change in the nominee shareholder. Neither the physician practice management entity nor the nominally owned entity is subject to any significant adverse impact upon a change in the nominee shareholder.") fact patterns are presented as additional information related to physician practice management entities. ##### [810-10-55-208](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-208) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:a20fdf6856ea57ab1a9dd98f2f70daf04a0f20cd5908be636e97f9042d4c1745 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following descriptions are included for background information purposes only. Not enough information is given in the examples to determine whether the physician practice management entity obtains an adequate controlling financial interest in the physician practice: 1. a A physician practice management entity (Entity A) acquires all the outstanding stock of a physician practice (Entity B) directly from Entity B shareholders by issuing shares of Entity A voting common stock. Concurrent with the acquisition, the physicians who are the former owners of Entity B form a new professional corporation (Entity C), which enters into a long-term management agreement with Entity B. The physicians formerly of Entity B, who are now owners and employees of Entity C, enter into employment agreements with Entity C. 2. b A physician practice management entity (Entity A) acquires all the outstanding stock of a physician practice (Entity B) directly from Entity B shareholders by issuing shares of Entity A voting common stock. Concurrent with the acquisition, the physicians and former owners of Entity B form a new professional corporation (Entity C) and enter into a long-term management agreement with Entity B. Although Entity A acquired the stock of Entity B, state law precludes contractual arrangements between physicians and hospitals and between physicians and health maintenance organizations from being held by a non-physician-owned practice (Entity B after the acquisition). Therefore, Entity B's patient contracts are transferred concurrent with the acquisition to Entity C. The physicians formerly of Entity B, who are now owners and employees of Entity C, enter into employment agreements with Entity C. 3. c A physician practice management entity creates a wholly owned subsidiary (Entity A), which acquires all the net assets of a physician practice (Entity B) through the physician practice management entity's issuing some of its shares of voting common stock to Entity B. Concurrent with the transaction, Entity B enters into a long-term management agreement with Entity A. The ownership of Entity B remains the same; however, the physicians (that is, the owners of Entity B) enter into new employment agreements with Entity B. ##### [810-10-55-209](https://asc.understandingaccounting.org/asc/810/10/#810-10-55-209) Pending content: no Source downloaded (UTC): 2026-09-10T01:29:12.238Z to 2026-09-10T01:29:12.238Z Record version: sha256:a7a44a972d3a690fecf9ad78192e8e3f0ad733e481115f8d9169e732d3569426 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following descriptions are included for background information purposes only. Not enough information is given in the examples to determine whether the physician practice management entity obtains an adequate controlling financial interest in the physician practice: 1. a At the direction of the physician practice management entity, a physician who will be the physician practice management entity's [nominee shareholder](https://asc.understandingaccounting.org/glossary/n/#nominee-shareholder "One or more shareholders whose relationship with the physician practice management entity (which can be either the physician practice management entity itself or its controlled subsidiaries) perpetually has all of the following characteristics: Time Frame: The physician practice management entity can at all times establish or effect a change in the nominee shareholder. The physician practice management entity can cause a change in the nominee shareholder an unlimited number of times, that is, changing the nominee shareholder one or more times does not affect the physician practice management entity's ability to change the nominee shareholder again and again. Discretion: The physician practice management entity has sole discretion without cause to establish or change the nominee shareholder. The physician practice management entity can name anyone as a new nominee shareholder (that is, the physician practice management entity's choice of an eligible nominee is not limited). Impact: The physician practice management entity and the nominally owned entity incur no more than a nominal cost to cause a change in the nominee shareholder. Neither the physician practice management entity nor the nominally owned entity is subject to any significant adverse impact upon a change in the nominee shareholder.") incorporates a nominally capitalized new physician practice. In a subsequent exchange of shares, the physician practice management entity becomes the outright owner of the shares of the existing physician practice. The physician or physicians who were the former owners of the existing physician practice simultaneously sever their employment relationship with the existing physician practice and establish an employment relationship with the new physician practice. According to the terms of another simultaneously executed agreement, the physician who established the new physician practice becomes the physician practice management entity's nominee shareholder of that practice. A management agreement between the physician practice management entity and the new physician practice is also simultaneously executed. 2. b The physician practice management entity issues its shares to the shareholders of the existing physician practice. Simultaneously, shares of the existing physician practice are delivered to a physician who is a nominee of the physician practice management entity, and a management agreement is executed between the physician practice management entity and the existing physician practice. By virtue of the terms of the management agreement that gives the rights to the residual equity of the existing physician practice to the physician practice management entity, the shares of the physician practice held by the nominee have only a nominal value. The physicians who previously owned the existing physician practice and who were employees of it execute new employment agreements with the now nominee-owned existing physician practice.