The Case Of ABC Tech And Its Variable Interest Entities: When Is Consolidation Required?

Abstract

In this case, students interpret GAAP requirements with respect to the accounting for variable interest entities. The case requires students (who take on the role of an audit manager) to critically apply GAAP requirements to the fact situation facing a fictitious technology company. The fictitious company is highly leveraged and has two large variable interest entities and the CEO of the company is determined to keep these entities off of his companys financial statements. The case requires critical thinking and judgment to determine if one or both of the companys variable interest entities must be consolidated according to current GAAP. Students are to summarize their findings in a memo to the audit partner in charge of the local office.