An entity in which the investor has obtained less than a majority-owned interest, according to the United States Financial Accounting Standards Board. A variable interest entity is subject to consolidation if certain conditions exist.
If a firm is the primary beneficiary of a VIE, the holdings must be disclosed on the balance sheet. The primary beneficiary is defined as the person or company with the majority of variable interests.
Also known as a conduit.
|||VIEs are commonly used within financial firms for their subprime mortgage-backed securities. They can be a special-purpose vehicle that allows firms to keep assets off of their balance sheets. A VIE refers to the way a firm's exposure to the SPV can change. This is the key to whether or not it can be excluded from the balance sheet.
A corporation can use such a vehicle to finance an investment without putting the entire firm at risk. The problem, as with SPVs in the past, is that they have become a method of hiding things .
