Question

In regards to both US accounting standards and IFRS- Does a U.S. parent entity need to report and consolidate a VIE when the parent has very little control?

Answer 1

• Variable interest entities (VIE) are subsidiaries where the parent does not own the majority of the shares, yet controls the entity
• VIEs should be consolidated if the parent absorbs most or all of the risk associated with the entity, is the primary beneficiary of the returns of the entity, or both

Difference between US GAAP & IFRS

1. Under GAAP, noncontrolling interest is recorded at fair value while under IFRS, noncontrolling interest can be recorded at fair or book value
2. IFRS test for goodwill impairment is slightly different than GAAP test for goodwill impairment.
3. There is potential for subsequent capitalization of future costs related to IPR&D under IFRS but not under GAAP.
4. Under IFRS, parent and subsidiary accounting practices need to conform, but not under GAAP.
5. Some differences exist relating to VIEs.

SO TO YOUR QUESTION:
If parent has very little control then it is not necessary to report and consolidate.