Consolidating joint ventures under gaap
CPAs can help reporting entities evaluate the sufficiency of equity at risk using qualitative or quantitative methods.
Use the qualitative approach first to make the consolidation vs.
Investors with such an interest — Participate in decision-making processes by voting their shares.
— Expect to share in returns generated by the entity. To avoid consolidation the total equity investment at risk should be sufficient for the VIE to finance its activities without additional support.
Joint arrangements are further divided between joint operations and joint ventures.Where parties to a joint arrangement have rights to the assets and obligations for the liabilities relating to the arrangement, the arrangement is classified as a joint operation under IFRS 11.Joint operators are required to recognize in relation to their interest in the assets and liabilities of the arrangement, their share of joint assets or jointly incurred liabilities in accordance with the contractual arrangement. GAAP, an interest in joint arrangement is accounted for under the equity method, a judgment is required under IFRS as to the rights and obligations arising from the arrangement and, as a result, there may be significant differences under IFRS regarding the investor’s reported assets and liabilities.Proportionate consolidation occurs when the venture’s share of each of the assets, liabilities, income and expense of a jointly controlled entity are combined line by line with similar items in the venturer’s financial statements. AMONG ENRON’S PROBLEMS WAS ITS USE of variable interest entities, which allowed it to leave significant amounts of debt off its balance sheet.