FASB Interpretation No. 46: Assessing the Impact

In a culmination of a project begun in the wake of disclosures concerning Enron Corporations' use of special-purpose entities (SPEs), the Financial Accounting Standards Board (FASB) issued its long-anticipated interpretation of ARB No. 51, Consolidated Financial Statements, and FASB Statement No. 94, Consolidation of All Majority-Owned Subsidiaries, on January 17, 2003.

ARB 51 and Statement 94 require the preparation of consolidated financial statements when one entity has a controlling financial interest in another entity. Usually a controlling financial interest is established when an investor has a majority voting interest in an investee. However, since most SPEs are established to fulfill a single function, determining whether a controlling financial interest exists through voting control is often difficult since there are typically only limited matters on which the SPE investors are able to vote. FASB Interpretation No. 46, Consolidation of Variable Interest Entities, interprets the phrase controlling financial interest to resolve the difficulty involved with identifying control of SPEs based on voting interests. FIN 46 supersedes various Emerging Issues Task Force (EITF) consensuses and SEC staff pronouncements addressing SPE consolidation issues and creates a new model for determining when SPEs (which under FIN 46 are referred to as variable interest entities, or VIEs) should be consolidated that focuses on ownership of variable interests issued by the entity.