Consolidation of Variable Interest Entities: Applying the Provisions of FIN 46 (R)

2005 ◽  
Author(s):  
Alan Reinstein ◽  
Gerald Lander ◽  
Stephen Danese
Keyword(s):  
Variable Interest Entities

Changes in accounting and auditing for consolidation of variable interest entities

2012 ◽  
Vol 23 (4) ◽  
pp. 55-60 ◽  
Author(s):  
Alan Reinstein ◽  
Natalie Tatiana Churyk ◽  
S. Sam Berde
Keyword(s):  
Variable Interest Entities

Auditing and Accounting for the Consolidation of Variable Interest Entities

2013 ◽  
Vol 24 (6) ◽  
pp. 55-57
Author(s):  
Alan Reinstein ◽  
Natalie Tatiana Churyk
Keyword(s):  
Variable Interest Entities

An Examination of the Cost of Capital Implications of FIN 46

2012 ◽  
Vol 87 (4) ◽  
pp. 1105-1134 ◽  
Author(s):  
Carolyn M. Callahan ◽  
Rodney E. Smith ◽  
Angela Wheeler Spencer
Keyword(s):  
Comparative Analysis ◽  
Cost Of Capital ◽  
Balance Sheet ◽  
Equity Capital ◽  
Data Availability ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Variable Interest Entities ◽  
The Cost

ABSTRACT This study examines whether the adoption in 2003 of FASB Interpretation No. 46/R (FIN 46), Consolidation of Variable Interest Entities—An Interpretation of ARB No. 51, changed the cost of capital for affected firms. Using comparative analysis on a broad sample of 11,719 firm-quarter observations for 1,389 firms during the period 1998 through 2005, we find evidence that FIN 46 significantly increased the cost of equity capital for firms with affected variable interest entities (VIEs), an increase of approximately 50 basis points relative to firms reporting no material effect from the standard. Further, firms consolidating these formerly off-balance sheet structures experienced the largest increase. Taken together, these results suggest that FIN 46 reduced the opportunity for firms to use off-balance sheet structures to artificially reduce their cost of capital, a matter of regulatory concern. Data Availability: All data are available from public sources.

Does Consolidation of Variable Interest Entities Improve the Pricing of Financial Reporting in Bank Holding Companies? Evidence From FAS 166/167

2021 ◽  
pp. 0148558X2098737
Author(s):  
Audrey Wen-hsin Hsu ◽  
Hamid Pourjalali ◽  
Joshua Ronen
Keyword(s):  
Financial Institutions ◽  
Financial Reporting ◽  
Market Reaction ◽  
Cash Flows ◽  
Financial Accounting ◽  
Holding Companies ◽  
Future Earnings ◽  
Consumer Loans ◽  
Earnings Surprises ◽  
Variable Interest Entities

The study examines whether consolidating qualified special-purpose entities (QSPEs) under Statement of Financial Accounting Standards Nos. 166 and 167 (FAS 166/167) improves the market reaction to earnings disclosures. We use a difference-in-difference design to compare the change sample, which is defined as banks that consolidate QSPEs after FAS 166/167, with the no-effect sample, which is defined as financial institutions with no QSPEs or banks that do not consolidate QSPEs after FAS 166/167. The results show that, during a short window around earnings announcements, the change sample experiences higher market reaction to earnings surprises than the no-effect sample after the implementation of FAS 166/167. We also find that the effect is more pronounced in banks that engage in securitization and in financial institutions whose securitized loans originate primarily from consumer loans rather than mortgages. Additional analysis also finds that adopting FAS 166/167 enhances the ability of earnings to predict future earnings and future cash flows in banks. The important implication of the study for regulators is that FAS 166/167 improves bank transparency.

scholarly journals The Case Of ABC Tech And Its Variable Interest Entities: When Is Consolidation Required?

2012 ◽  
Vol 8 (2) ◽  
pp. 151-164
Author(s):  
Tim Kelley ◽  
Loren Margheim
Keyword(s):  
Critical Thinking ◽  
Financial Statements ◽  
Variable Interest Entities

In this case, students interpret GAAP requirements with respect to the accounting for variable interest entities. The case requires students (who take on the role of an audit manager) to critically apply GAAP requirements to the fact situation facing a fictitious technology company. The fictitious company is highly leveraged and has two large variable interest entities and the CEO of the company is determined to keep these entities off of his companys financial statements. The case requires critical thinking and judgment to determine if one or both of the companys variable interest entities must be consolidated according to current GAAP. Students are to summarize their findings in a memo to the audit partner in charge of the local office.

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