This paper reviews an article by Thomas Ratcliffe 'To Consolidate or Not' in the "Journal of Accountancy" issue of December, 2005.
Written in 2006; 975 words; 1 sources; MLA; $ 34.95
Paper Summary:
This paper explains that, given the Sarbanes-Oxley Act of 2002, in January, 2003, the FASB issued Interpretation Brief No. 46, Consolidation of Variable Interest Entities, which provides guidance to CPAs and financial professionals in the consolidation of variable interest entities (VIE). The author points out that the article's main points define how to choose if a VIE should be consolidated into a given firm's financial statements, provide the definition of primary beneficiaries of a VIE as well as provide guidance on how to account for a joint venture's creation of a VIE as in the case of Dell Financial Services and CTI Group. The paper states that the complexities of consolidating VIEs will increase significantly over time as joint ventures, mergers and acquisitions become the fuel of industry consolidations in manufacturing specifically.
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Article Summary
Conclusion
From the Paper:
"The author states the example of Dell Financial Services (DFS) and CIT Group (CIT), and the assignment of VIE consolidation to the former due to their role in the joint venture of assuming liability for losses. CIT acts as the financial intermediary that enables transactions between DFS and customers acquiring Dell products and services. Dell owns a 70% stake in CIT and had invested as of January 31, 2003 a total of $35M in its operations. The joint venture is structured such that losses generated by DFS are fully allocated to CIT, while network incomes are allocated 70% to Dell and 30% to CIT."
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