Case 06-4: Fast Car, Inc.
In June 2008, the FASB issued FASB Statement 167, Amendments to FASB Interpretation No. 46(R) (Statement 167), which is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009.
Statement 167 amends Interpretation 46(R) to require an enterprise to perform a qualitative analysis (eliminates quantitative analysis) to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity. Under Statement 167, an enterprise that has both of the following characteristics is the primary beneficiary of the variable interest entity:
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The power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance
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The obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity
In addition to the new consolidation model described above, Statement 167 also amends:
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Certain guidance for determining whether an entity is a variable interest entity
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Guidance on when a service or management contract is a variable interest
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When an enterprise is required to assess whether the enterprise is the primary beneficiary of the variable interest entity (requires ongoing reassessment)
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When the related party guidance is applied in the consolidation model
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Disclosures about an enterprise’s involvement in a variable interest entity (requires disclosures generally consistent with FASB Staff Position FAS 140-4 and FIN 46(R)-8, Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities, which was nullified by Statement 167)
Statement