Advanced Accounting Persuasive Audit Letter on Variable Interest Entities

Topics: Financial accounting, Entity, Types of business entity Pages: 2 (441 words) Published: November 4, 2012
October 18, 2012

Reyna Cantu, CFO
San Diego Technology, Inc.
1234 Fast Lane
San Diego, CA 92110

Dear Ms. Cantu:

It was a pleasure meeting you during the recent seminar, and I am writing to further discuss the opportunity for AJP & Company to provide audit services for San Diego Technology, Inc. As you expressed a concern for your company’s variable interest entities, I can assure you that AJP & Company has diverse and comprehensive experience with complex accounting practices and can address those needs and provide a customized and quality solution.

AJP & Company has gained experience in the technology industry, and has serviced many companies with complex accounting topics. Variable interest entity accounting is a topic that AJP & Company commonly deals with for our clients. Each client has a different situation regarding these entities and we can assure you we approach each case of variable interest entities on an individual and customized basis. The basis for deciding the consolidation needed is presented in Financial Interpretation 46 set by the Financial Accounting Standards Board.

According to Financial Interpretation 46, a company only has to consolidate its variable interest entities under certain conditions. Before enacting FIN 46, the entity had to be consolidated if the majority interest was over fifty percent of the voting rights. According to FIN 46, there is more basis than just voting rights that determine the need for consolidation, and even in the case where fifty percent voting interest is held, there are certain exceptions that allow an investing company to not consolidate. The definition of controlling interest is no longer dependent on a majority of voting rights, and we will examine each entity to determine if majority ownership exists, and if not, we determine if there is a basis for controlling interest. This basis includes identifying factors such as capitalization of the entity, rights to...
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