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The primary beneficiary is the reporting entity that is required to consolidate the VIE. The analysis required to determine which entity has a controlling financial interest and is the primary beneficiary of a VIE is predominantly qualitative. The primary beneficiary is the variable interest holder that has both (1) the power to direct activities that most significantly impact the economic performance of the VIE, and (2) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. A reporting entity may also be the primary beneficiary if it is part of a related party group that meets both of the above criteria. A reporting entity is required to reconsider whether it is the primary beneficiary of a VIE on an ongoing basis.

5.1.1 Identification of the primary beneficiary

Once a reporting entity determines that it has a variable interest in a VIE, it must determine whether it is the primary beneficiary.

5.1.1.1 What is a primary beneficiary?

A primary beneficiary (PB) is the reporting entity that holds a controlling financial interest in a VIE and thus is required to consolidate the entity. The VIE model requires a reporting entity with a variable interest in a VIE to qualitatively assess whether it has a controlling financial interest in the entity. This approach is intended to encourage the use of judgment in determining which reporting entity controls a VIE.

Excerpt from ASC 810-10-25-38A

A reporting entity with a variable interest in a VIE shall assess whether the reporting entity has a controlling financial interest in the VIE and, thus, is the VIE’s primary beneficiary. This shall include an assessment of the characteristics of the reporting entity’s variable interest(s) and other involvements (including involvement of related parties and de facto agents), if any, in the VIE, as well as the involvement of other variable interest holders. Paragraph 810-10-25-43 provides guidance on related parties and de facto agents. Additionally, the assessment shall consider the VIE’s purpose and design, including the risks that the VIE was designed to create and pass through to its variable interest holders.
A reporting entity shall be deemed to have a controlling financial interest in a VIE if it has both of the following characteristics:
  1. The power to direct the activities of a VIE that most significantly impact the VIE’s economic performance
  2. The obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The quantitative approach described in the definitions of the terms expected losses, expected residual returns, and expected variability, is not required and shall not be the sole determinant as to whether a reporting entity has these obligations or rights.


Only one reporting entity, if any, is expected to be identified as the primary beneficiary of a VIE. Although more than one reporting entity could have the characteristic in (b) of this paragraph, only one reporting entity if any, will have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance.

ASC 810-10-25-38B

A reporting entity must identify which activities most significantly impact the VIE’s economic performance and determine whether it has the power to direct those activities. A reporting entity’s ability to direct the activities of an entity when circumstances arise or events happen constitutes power if that ability relates to the activities that most significantly impact the economic performance of the VIE. A reporting entity does not have to exercise its power in order to have power to direct the activities of a VIE.

A reporting entity is deemed to be the primary beneficiary of a VIE if it meets both criteria below:
  • Power Criterion: Power to direct activities of the VIE that most significantly impact the VIE’s economic performance (“power criterion”).
  • Losses/Benefits Criterion: Obligation to absorb losses from or the right to receive benefits of the VIE that could potentially be significant to the VIE (“losses/benefits criterion”).

In assessing whether a reporting entity meets both the power and the losses/benefits criteria, the VIE’s purpose and design, including the risks the entity was designed to create and pass through to its variable interest holders, should be considered.
A reporting entity should also consider the variable interests of any related parties, including de facto agents, in this assessment. Refer to CG 5.4 for discussion on related parties.
Only one reporting entity (if any) should be identified as the primary beneficiary of a VIE. Although more than one reporting entity could meet the losses/benefits criterion, only one reporting entity (if any) will have the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance.
The VIE model requires an ongoing reconsideration of the primary beneficiary of a VIE. There are many reasons why there could be a change in the primary beneficiary. For example, a change might result from a transfer of power from one reporting entity to another. Some examples of when this might occur include:
  • the expiration of kick-out rights or participating rights,
  • the realization of a contingent event that causes kick-out rights or participating rights to become exercisable, and
  • an acquisition of interests or contractual arrangements that allow a party to exercise power over the entity.

Question CG 5-1 addresses whether a VIE will always have a primary beneficiary.
Question CG 5-1
Will a VIE always have a primary beneficiary?
PwC response
Under certain scenarios, none of the variable interest holders may be deemed to be the primary beneficiary and therefore no one would consolidate the VIE. For example:
  • The party that meets the power criterion may not hold a potentially significant variable interest in the VIE (i.e., it does not meet the losses/benefits criterion).
  • Power is shared among multiple unrelated parties.
  • Power is not shared, but multiple unrelated parties direct the same activities that most significantly impact the entity’s economic performance, and no single party directs the majority of these activities.
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