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Essay / Research Paper Abstract
A 3 page memo reviewing the Financial Accounting Standards Board (FASB)' position on accounting for the special-purpose entity. The paper provides an overview of post-Enron changes and the clarification provided by FASB in December 2008. Bibliography lists 4 sources.
Page Count:
3 pages (~225 words per page)
File: CC6_KSacctSPEsha.rtf
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Unformatted sample text from the term paper:
special purpose entities Date: The Financial Accounting Standards Board (FASB) released a staff position document
dated December 11, 2008 discussing FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and amending FASB Interpretation No. 46, Consolidation of Variable
Interest Entities, "to require public enterprises,2 including sponsors that have a variable interest in a variable interest entity, to provide additional disclosures about their involvement with variable interest entities" (Disclosures
by Public Entities, 2008). Schmutte and Duncan (2005) observed several years ago that Interpretation 46(R) - first published in December 2003 - "represents a significant shift in accounting theory,
and has broadened the pool of entities potentially subject to consolidation" (p. 42) to include a much greater number of potential relationships than the Enron Jedi and other special purpose
entities (SPEs) abuses discovered in 2002. "Entity theory implies that minority interest is an equity interest" (Schroeder, Clark and Cathey, 2005; Ch16 p.
9); entity theory dictates that assets = equities (Schroeder, Clark and Cathey, 2005; Ch15 p. 2). The publicly-traded organization that holds assets in another entity therefore holds equity in
that other entity and realizes the accounting principle shift as discussed by Schmutte and Duncan (2005). The scope of variable interest entities (VIEs) that the publicly-traded organization may be
required to consolidate onto its balance sheet covers a broad range. Examples include "the sale-leaseback of real estate or equipment, partnerships and joint ventures, management/service contracts, and residual value
or performance guarantees, as well as guarantees associated with previously unconsolidated entities" (Schmutte and Duncan, 2005; p. 42). Classification as a shareholder in an SPE equates to holding equity
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