Variable interest entity (VIE) is a term used by the United States Financial Accounting Standards Board

Financial Accounting Standards Board

The Financial Accounting Standards Board is a private, not-for-profit organization whose primary purpose is to develop generally accepted accounting principles within the United States in the public's interest...

 in FIN 46

FIN 46

FIN 46, revised and replaced in its entirety by FIN 46R, is a statement for the purposes of United States Generally Accepted Accounting Principles published by the US Financial Accounting Standards Board which requires a reporting enterprise to consolidate a variable interest entity if it is the...

 to refer to an entity (the investee) in which the investor holds a controlling interest

Controlling interest

Controlling interest in a corporation means to have control of a large enough block of voting stock shares in a company such that no one stock holder or coalition of stock holders can successfully oppose a motion...

 that is not based on the majority of voting rights. It is closely related to the concept of a special purpose entity

Special purpose entity

A special purpose entity is a legal entity created to fulfill narrow, specific or temporary objectives...

. The importance of identifying a VIE is that a company needs to consolidate

Consolidation (business)

Consolidation or amalgamation is the act of merging many things into one. In business, it often refers to the mergers and acquisitions of many smaller companies into much larger ones. In the context of financial accounting, consolidation refers to the aggregation of financial statements of a group...

 such entities if it is the primary beneficiary of the VIE.

Criteria

A VIE is an entity meeting one of the following three criteria as elaborated in FASB ASC 810-10 [formerly FIN 46 (Revised)]:

1. The equity-at-risk is not sufficient to support the entity's activities (e.g.: the entity is thinly capitalized
   Financial capital
   Financial capital can refer to money used by entrepreneurs and businesses to buy what they need to make their products or provide their services or to that sector of the economy based on its operation, i.e. retail, corporate, investment banking, etc....
   
   , the group of equity
   Stock
   The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...
   
   holders possess no substantive voting rights, etc.);
2. As a group, the equity-at-risk holders cannot control the entity; or
3. The economics do not coincide with the voting interests (commonly known as the "anti-abuse rule").

External links

• http://www.vinodkothari.com/fin46vk.htm
• http://www.bloomberg.com/apps/news?pid=20601103&sid=aFTh5VXP9m0U&refer=news
• http://www.ft.com/cms/s/0/b7e7876a-e564-11dc-9334-0000779fd2ac.html
• http://www.nysscpa.org/cpajournal/2006/806/essentials/p28.htm