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What is variable interest entity?

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Quick Answer

A variable interest entity refers to an investee in which an investor has less than a majority-owned interest. A variable interest entity may be consolidated, if the right conditions exist.

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If a company is the primary beneficiary of such a stakeholder, the balance sheet must indicate this fact. The primary beneficiary holds the majority of the variable interests. A variable interest entity works on behalf of the reporting company and its related parties.

These types of accounting entities attempt to keep liabilities off the balance sheets of companies. Variable interest entities exist due to the United States Financial Accounting Standards Board. Variable interests may be companies or individuals,

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