COMMERCE 4AC3 Chapter 9: Other consolidation reporting issues
11 Apr 2018
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Document Summary
Special purpose entity (spe): entity such as (proprietorship, partnership, corporation or trust) set up by a sponsor to accomplish a very specific and limited business activity. Can often secure lower cost debt financing for the sponsor using assets transferred to them by sponsor. As credit risk is limited to the spes assets, not the broader assets of the sponsor and because the business activity of the spe is restricted. Spe can pay the sponsor for the transferred assets. The sponsor therefore monetizes previously illiquid assets by turning them into cash using the spe. With gaap changes, sponsor are not required to consolidate their spe"s (enron was able to take advantage of not consolidating spe"s and this led to its bankruptcy and this also prompted the gaap changes) Sponsors obtain control of spe"s through variable interests (sponsors may own few or no voting rights of the spe)
