Two models Class, under GAAP, a company must consolidate any entity in which it has a "controlling interest." This term was long defined as ownership of more than 50% of the entity's voting interests. FIN 46(R) makes two critical changes: It defines when a company (sponsor or creator of a variable interest entity) should base "controlling financial interest" on factors other than voting rights, and it applies a new "risk and rewards" model in these situations. Consequently, GAAP now prescribes two accounting models for consolidation: - The voting-interest model, where the investor owns more than 50% of an entity's voting interests consolidates the investee's operation; and - The risk-and-rewards model, where the party that participates in the majority of the entity's economic impact consolidates such operations. This party could be an equity investor, other capital providers, or a party with contractual arrangements. FASB coined the term "variable interest entity" (VIE) for entities subject to the risk-and-rewards model. Class, what do you think of these two models? Will they result in major differences in the financial statement result? Anyone