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Accounting for special purpose entities: The control view versus the primary beneficiary view for consolidation

Accounting for special purpose entities: The control view versus the primary beneficiary view for... This article provides an analysis of the economic incentives and financial reporting for Special Purpose Entities (SPEs) over the last four decades. The analysis explains economic factors motivating business use of SPEs and the origins of SPEs in lease accounting and securitization transactions. Related financial reporting standards are identified and discussed, including the historical shift from a traditional control viewpoint to a primary beneficiary viewpoint for financial reporting for consolidation for SPEs (recently renamed Variable Interest Entities (VIEs) in U.S. Financial Accounting Interpretation 46R). The article also includes illustrative journal entries explaining SPE transactions from both the viewpoint of the creating company(s) and the SPE. Actual financial reporting examples and/or journal entries for SPEs created by Bank of America, General Motors Acceptance Corporation, Lucent Technologies and Alza Pharmaceuticals Corporation are also provided. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Applied Accounting Research Emerald Publishing

Accounting for special purpose entities: The control view versus the primary beneficiary view for consolidation

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Publisher
Emerald Publishing
Copyright
Copyright © 2006 Emerald Group Publishing Limited. All rights reserved.
ISSN
0967-5426
DOI
10.1108/96754260680001047
Publisher site
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Abstract

This article provides an analysis of the economic incentives and financial reporting for Special Purpose Entities (SPEs) over the last four decades. The analysis explains economic factors motivating business use of SPEs and the origins of SPEs in lease accounting and securitization transactions. Related financial reporting standards are identified and discussed, including the historical shift from a traditional control viewpoint to a primary beneficiary viewpoint for financial reporting for consolidation for SPEs (recently renamed Variable Interest Entities (VIEs) in U.S. Financial Accounting Interpretation 46R). The article also includes illustrative journal entries explaining SPE transactions from both the viewpoint of the creating company(s) and the SPE. Actual financial reporting examples and/or journal entries for SPEs created by Bank of America, General Motors Acceptance Corporation, Lucent Technologies and Alza Pharmaceuticals Corporation are also provided.

Journal

Journal of Applied Accounting Research – Emerald Publishing

Published: Mar 1, 2006

Keywords: Financial reporting systems; Special purpose entities; Economic incentives

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