Comparison between U.S. GAAP and International ... - Grant Thornton

Comparison between U.S. GAAP and International Financial Reporting Standards 109
IFRS
U.S. GAAP
following characteristics
The power through voting or similar rights to
direct the activities that most significantly impact
the legal entity’s economic performance
The obligation to absorb the expected losses of
the legal entity
The right to receive expected residual returns of
the legal entity
• Voting rights of some equity investors are not
proportional to their obligation to absorb expected
losses and / or right to receive expected residual
returns and substantially all the activities of the legal
entity involve, or are conducted on behalf of, a single
investor with disproportionately few voting rights
(ASC 810-10-15-14)
IFRS does not have the concept of VIEs. Although a
special purpose entity (SPE) could be a VIE, the definition
of a VIE in the ASC 810-10 differs from an SPE in SIC-12.
Differences could occur because the scope and guidance
in the ASC 810-10 differ from SIC-12. In addition, the
guidance in ASC 810-10 applies only to legal entities
(ASC 810-10-15-14).
Consolidation evaluation
An SPE shall be consolidated when the substance of
the relationship between a reporting enterprise and the
SPE indicates that the SPE is controlled by the reporting
enterprise (SIC-12.8).
In addition to the situations listed in IAS 27.13
(discussed in the section above on Basic requirements
for group accounts), factors which may indicate that the
reporting enterprise controls an SPE include the
following (SIC-12.10 and Appendix to SIC-12):
• The SPE's activities are conducted on behalf of the
enterprise according to its specific business needs
so that it obtains the benefits from the SPE's
activities
• The enterprise in substance has decision-making
powers to obtain the majority of the benefits of the
activities of the SPE or has delegated them through
An enterprise has to determine whether it has an explicit
or implicit variable interest in another entity. A variable
interest is a contractual, ownership, or other financial
interest in an entity that changes with changes in the fair
value of the entity’s net assets exclusive of variable
interests. (ASC 810-10-05, “Variable Interests” and
ASC 810-10-55-16 through 55-41).
If the reporting entity concludes that it has variable
interests in another legal entity, it should determine if the
other entity is a VIE. If the legal entity is a VIE, it needs to
be evaluated for consolidation (ASC 810-10-15-14).
A reporting entity that holds a variable interest in a VIE
and has both of the following characteristics of a
controlling financial interest in a VIE is the primary
beneficiary of the VIE (ASC 810-10-25-38A):
• Power: The power to direct the activities of the VIE
that most significantly affect the VIE’s economic
performance
• Economic interest: The obligation to absorb losses, or
the right to receive benefits that could potentially be
significant to the VIE
The primary beneficiary of a VIE must consolidate the
VIE. Regardless of whether a reporting entity consolidates
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