Question

Which of the following is NOT identified by GAAP as a characteristic of a "primary beneficiary" of a VIE?

a) Power
b) Decision-making ability
c) Variable interest
d) Equity investment

Answer 1

The characteristic not identified by GAAP for a primary beneficiary of a VIE is 'Equity investment'. GAAP specifies that the power to direct significant activities and having a variable interest are key characteristics, not holding an equity investment.

Step-by-step explanation:

The question asks about the characteristics that are identified by the Generally Accepted Accounting Principles (GAAP) for a primary beneficiary of a Variable Interest Entity (VIE). According to GAAP, the primary beneficiary of a VIE is the party that has both the power to direct the activities of the VIE that most significantly impact the entity's economic performance and the obligation to absorb losses or right to receive benefits from the entity that could potentially be significant to the VIE.

The characteristics identified by GAAP for a primary beneficiary include:

Power to direct the activities of the VIE that most significantly impact its economic performance.

Obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE, which indicates a variable interest in the entity.