Definition of variable interest entity (VIE)

entity whose equity investors do not have sufficient equity at risk such that the entity cannot finance its own activities. When a business has a controlling financial interest in a variable interest entity, the assets, liabilities, and profit of that entity must be included in consolidation. The entity that consolidates a variable interest entity is called theprimary beneficiary. Variable interest is a contractual, ownership, or other interest in an entity that changes as the entity's net assets change. Entity is any legal structure to carry out operations or handle assets such as corporations, partnerships, limited liability companies, and trusts. There are many examples of variable interests such as guarantees, equity investments, written put options, and forward contracts. A business enterprise must consolidate a variable interest entity when that enterprise has a variable interest that will cover most of the entity's expected losses or receive most of the entity's anticipated residual return.