Variable interest entities under ASC 810

The VIE model exists to stop companies keeping entities they effectively control off their balance sheets through contracts rather than shares, the problem exposed by Enron's special purpose entities. This guide explains how to tell whether an entity is a VIE, how the primary beneficiary is identified, and works through examples.

By Muhammad Bilal, Chartered Accountant. Reviewed by Awais Jameel, Chartered Accountant. 3 minute read.

Short answer

A variable interest entity (VIE) is a legal entity in which equity investors do not have enough equity at risk to finance its activities without additional subordinated support, or lack the characteristics of a controlling financial interest. Under ASC 810, a VIE is consolidated by its primary beneficiary: the party with both the power to direct the activities that most significantly affect the VIE's economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.

At a glance

Step 1
Do you hold a variable interest?
Step 2
Is the entity a VIE?
Step 3
Are you the primary beneficiary?
Primary beneficiary
Power plus significant economics
Reassessed
Primary beneficiary continuously
Private companies
Common control alternative
Variable interest entities under ASC 810Step 1: Do you hold a variable interest?; Step 2: Is the entity a VIE?; Step 3: Are you the primary beneficiary?; Primary beneficiary: Power plus significant economics; Reassessed: Primary beneficiary continuously; Private companies: Common control alternative.KEY FACTS AT A GLANCEVariable interest entities under ASC 810Step 1Do you hold a variableinterest?Step 2Is the entity a VIE?Step 3Are you the primarybeneficiary?Primary beneficiaryPower plus significanteconomicsReassessedPrimary beneficiarycontinuouslyPrivate companiesCommon controlalternativeTax BakersVariable interest entities under ASC 810Step 1: Do you hold a variable interest?; Step 2: Is the entity a VIE?; Step 3: Are you the primary beneficiary?; Primary beneficiary: Power plus significant economics; Reassessed: Primary beneficiary continuously; Private companies: Common control alternative.KEY FACTS AT A GLANCEVariable interest entities underASC 810Step 1Do you hold a variable interest?Step 2Is the entity a VIE?Step 3Are you the primary beneficiary?Primary beneficiaryPower plus significant economicsReassessedPrimary beneficiary continuouslyPrivate companiesCommon control alternativeTax Bakers
Key facts at a glance, as set out in this guide.

How is a variable interest entity identified and consolidated?

Must the company consolidate under the VIE model?Must the company consolidate under the VIE model?Does it hold a variable interestin the legal entity?NoVIE modelnot relevantYesIs the entity a VIE (thin equity,or equity holders lack control)?NoUse the votinginterest modelYesDoes it have power and potentiallysignificant economics?NoNot the primarybeneficiaryYesPrimary beneficiary: consolidate
The VIE model looks at power and economics, not just shares.

What is a variable interest?

An investment or other interest that absorbs portions of the entity's expected losses or receives portions of its expected residual returns: equity, subordinated loans, guarantees, some leases with residual value guarantees, and certain service fees that are not at market rates. Arrangements that only create variability, such as a fixed-price supply contract at market terms, usually are not variable interests.

What makes an entity a VIE?

An entity is a VIE if any of these is true:

  • Its total equity investment at risk is not sufficient to finance its activities without additional subordinated financial support.
  • The holders of the equity at risk, as a group, lack the power, through voting or similar rights, to direct the activities that most significantly affect its performance, or the obligation to absorb its expected losses, or the right to receive its expected residual returns.
  • Voting rights are disproportionate to economic interests, and substantially all the activities are conducted on behalf of an investor with disproportionately few voting rights.

Who is the primary beneficiary?

The variable interest holder that has both the power to direct the activities that most significantly affect the VIE's economic performance and the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE. Only one party, if any, can be the primary beneficiary. The assessment is reconsidered continuously as facts change.

Variable interest entity examples

ArrangementVIE?Primary beneficiary
A thinly capitalized entity set up to lease a building to one company, funded by debt the company guaranteesYes: insufficient equity at riskLikely the lessee, if it directs the key decisions and its guarantee absorbs losses
A securitization vehicle holding receivables, where the transferor services them and holds the subordinated interestYesOften the transferor: servicing power plus the subordinated interest
A franchisee funded mainly by its owner's equity, run by its ownerUsually noNot applicable; the franchisor's brand rights are protective
A research joint venture funded equally by two companies that share decisionsDepends on equity sufficiencyNone if power is shared; each applies equity method accounting

What is the private company alternative?

A private company may elect not to apply the VIE guidance to a legal entity if both are under common control, the reporting entity and the legal entity are not under common control of a public business entity, and the legal entity is not a public business entity. Instead, it discloses its involvement. This often applies where the owners hold the operating company's property in a separate entity.

What must be disclosed?

The significant judgments made in determining whether to consolidate a VIE, the nature of the involvement and risks, the carrying amounts of the VIE's assets and liabilities, and, for unconsolidated VIEs with variable interests, the maximum exposure to loss. See ASC 810 explained and, for IFRS, control under IFRS 10, where similar entities are called structured entities.

Need help applying the standards?

Our Chartered Accountants help finance teams and students apply US GAAP and IFRS to real transactions.

Book a call Chat on WhatsApp

Questions people ask

What is a variable interest entity?

A legal entity whose equity is insufficient to finance its activities without additional subordinated support, or whose equity holders lack the characteristics of a controlling financial interest.

Who consolidates a VIE?

Its primary beneficiary: the party with the power to direct its most significant activities and the obligation to absorb losses or right to receive benefits that could be significant.

Why does the VIE model exist?

To require consolidation of entities controlled through contracts rather than voting shares, after off-balance-sheet structures such as Enron's.

Can private companies avoid VIE accounting?

They may elect not to apply the VIE guidance to legal entities under common control that meet certain criteria, with disclosure instead.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. FASB Accounting Standards Codification: Topic 805, Business Combinations
  2. FASB Accounting Standards Codification: Topic 810, Consolidation

Rules and fees change. If you are reading this long after October 4, 2026, confirm the figures with the source before you rely on them.

ASC 805 and 810ASC 810 consolidation explainedIFRS 10Control: power, returns and the link between themASC 805 and 810ASC 805 business combinations explained

More in ASC 805 and 810

TopicAll 3 guides in ASC 805 and 810

This guide is general information. It is not tax or legal advice for your situation.