Morgan Stanley 2010 Annual Report Download - page 86

In most cases, these SPEs are deemed for accounting purposes to be VIEs. The Company applies accounting
guidance for consolidation of VIEs to certain entities in which equity investors do not have the characteristics of
a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. Entities that previously met the criteria as
qualifying SPEs that were not subject to consolidation prior to January 1, 2010 became subject to the
consolidation requirements for VIEs on that date. Excluding entities subject to the Deferral (as defined in Note 2
to the consolidated financial statements), effective January 1, 2010, the primary beneficiary of a VIE is the party
that both (1) has the power to direct the activities of a VIE that most significantly affect the VIE’s economic
performance and (2) has an obligation to absorb losses or the right to receive benefits that in either case could
potentially be significant to the VIE. The Company consolidates entities of which it is the primary beneficiary.
The Company determines whether it is the primary beneficiary of a VIE upon its initial involvement with the
VIE and reassesses whether it is the primary beneficiary on an ongoing basis as long as it has any continuing
involvement with the VIE. This determination is based upon an analysis of the design of the VIE, including the
VIE’s structure and activities, the power to make significant economic decisions held by the Company and by
other parties and the variable interests owned by the Company and other parties.
See Note 2 to the consolidated financial statements for information on accounting guidance adopted on
January 1, 2010 for transfers of financial assets.
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