A variable interest entity (VIE) is a structure frequently used for off-balance sheet financing. VIEs have become quite numerous in recent years and have been the subject of some controversy.

a. Briefly explain what is meant by off-balance sheet financing.

b. What are some legitimate uses of VIEs?

c. How can VIEs be used to manage earnings to meet financial reporting goals and how does this relate to the importance of following the intent of the guidelines for consolidations?