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Basic Question 2 of 3
If the equity investors in an entity lack any of the characteristics below, the entity will be treated as a VIE. These characteristics are:
II. Voting rights.
III. The obligation to absorb the losses of the entity's assets and operations.
IV. The right to receive guaranteed rate of return.
I. Decision making ability in the entity.
II. Voting rights.
III. The obligation to absorb the losses of the entity's assets and operations.
IV. The right to receive guaranteed rate of return.
User Contributed Comments 3
| User | Comment |
|---|---|
| vi2009 | I'm not sure about II "Voting rights" as "voting rights" in the case of VIE isn't true voting rights anyway. More like lack "the ability to make decision". |
| gregsob2 | schweser list lack of right to receive residual returns as reason to qualify as VIE |
| davidt876 | yes gregsob, the answer says that too. vi2009, a requirement of keeping the entity off the balance sheet (VIE) is that you don't have enough voting rights to make decisions. the reason 'voting rights' and 'decision making ability' are separated here is to account for GAAPs new rule on financial control over decisions. so now even if you lack voting rights, they can nail you by saying you don't lack decision making ability you're getting confused because in the past, the third-party holding all those voting rights technically didn't have the ability to make decisions - but that's not what this question's about |
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Learning Outcome Statements
describe the classification, measurement, and disclosure under International Financial Reporting Standards (IFRS) for 1) investments in financial assets, 2) investments in associates, 3) joint ventures, 4) business combinations, and 5) special purpose and variable interest entities;
distinguish between IFRS and US GAAP in their classification, measurement, and disclosure of investments in financial assets, investments in associates, joint ventures, business combinations, and special purpose and variable interest entities;
analyze how different methods used to account for intercorporate investments affect financial statements and ratios.
CFA® 2025 Level II Curriculum, Volume 2, Module 10.