Variable Interest Entities

Changes to the Consolidation Analyses

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Many banks and financial services entities have investments or other interests in Variable Interest Entities (VIEs). Determining when a bank or other financial services entities should consolidate another legal entity that is a VIE can be complex. ASU 2015-02, Amendments to the Consolidation Analysis, effective for periods beginning after December 15, 2016, makes several important amendments to the Variable Interest model.

These amendments:

  • Modify the evaluation of whether limited partnerships (and similar legal entities) are VIEs or voting interest entities
  • Eliminate the presumption that a GP would consolidate a limited partnership
  • Affect the consolidation analysis of reporting entities that are involved with VIEs, particu-larly those that have fee arrangements and related-party relationships
  • Provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply, or operate in accordance, with requirements that are similar to those in Rule 2a-7 of the Invest-ment Company Act of 1940 for registered money market funds
  • Eliminate certain criteria considered when evaluating whether a fee arrangement is a variable interest

While these amendments make consolidation under the Variable Model generally less likely, it does complicate the analysis, particularly when related parties are involved. Additionally, most entities that have a variable interest in a VIE will need to update their consolidation analysis for the amendments in this guidance.

Daryl Buck
National Managing Partner
T +1 918 877 0824

Graham Dyer
T +1 512 663 0586