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Essay / Research Paper Abstract
A 6 page paper discussing changes proposed by the Financial Accounting Standards Board (FASB) in interpreting the Accounting Research Bulletin (ARB) No. 51 that defines the special purpose entity (SPE) and provides guidelines on when an SPE’s results must be consolidated into the balance sheet of the company that owns it. This paper summarizes the changes proposed by FASB as well as the reasons underlying the proposed change. FASB pursues alteration for reasons serving accounting theory as well as in response to specific recent abuses. Includes executive summary. Bibliography lists 12 sources.
Page Count:
6 pages (~225 words per page)
File: CC6_KSacctSPEinterp.rtf
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Unformatted sample text from the term paper:
to the Enron accounting scandal that brought about the collapse of the company, the Financial Accounting Standards Board (FASB) has proposed an interpretation of the Accounting Research Bulletin (ARB) No.
51 that defines the special purpose entity (SPE) and provides guidelines on when an SPEs results must be consolidated into the balance sheet of the company that owns it.
This paper summarizes the changes proposed by FASB as well as the reasons underlying the proposed change. FASB pursues alteration for reasons serving accounting theory as well as in
response to specific recent abuses. Major Provisions of Proposed Interpretation Consolidation of Certain Special-Purpose Entities SPEs have been defined and in use since
the publication of Accounting Research Bulletin (ARB) No. 51 in 1959. As ARB No. 51 has been used in general practice, "two enterprises generally have been included in consolidated
financial statements because one enterprise controls the other through voting ownership interests" (Financial Accounting Series, 2002). The Enron scandal provides evidence that this primary ownership interpretation is not adequate
for governing proper use of SPEs. The proposed interpretation that the FASB published on June 28, 2002 "would explain how to identify an
SPE that is not subject to control through voting ownership interests and would require each enterprise involved with such an SPE to determine whether it provides financial support to the
SPE through a variable interest" (Financial Accounting Series, 2002). Such an interpretation likely would not have avoided the collapse of Enron, but it could have had the effect of
requiring auditor Arthur Andersen to force Enron management to consolidate several of its SPEs into the Enron balance sheet. Under the proposed altered
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