FASB Proposes Consolidation Principles for SPEs

Norwalk, CT, July 1, 2002—The Financial Accounting Standards Board (FASB) has approved for issuance an Exposure Draft of a proposed Interpretation that establishes accounting guidance for consolidation of special-purpose entities (SPEs). The proposed Interpretation, Consolidation of Certain Special-Purpose Entities, will apply to any business enterprise—both public and private companies—that has an ownership interest, contractual relationship or other business relationship with an SPE. The proposed guidance would not apply to not-for-profit organizations. The comment period concludes August 30, 2002.


The objective of this proposed Interpretation is to improve financial reporting by enterprises involved with SPEs—not to restrict the use of SPEs. However, it is expected that when this proposal is implemented, more SPEs will be consolidated than in the past. Most SPEs serve valid business purposes, for example, by isolating assets or activities to protect the interests of creditors or other investors, or to allocate risks among participants. Many SPEs that were unconsolidated prior to the issuance of this proposed Interpretation were reported according to the guidance and accepted practice that existed prior to this proposed Interpretation.

Current accounting standards require an enterprise to include subsidiaries in which it has a controlling financial interest in its consolidated financial statements. That requirement usually has been applied to subsidiaries in which an enterprise has a majority voting interest but, in many circumstances, the enterprise’s consolidated financial statements do not include SPEs with which it has fundamentally similar relationships. The reason is that existing consolidation guidance focuses primarily on parent-subsidiary relationships established through voting ownership interests, and the relationship between a business enterprise and an SPE is established through other means.

The FASB believes that if a business enterprise has a controlling financial interest in an SPE, the assets, liabilities and results of the activities of the SPE should be included in consolidated financial statements with those of the business enterprise, which is referred to as the primary beneficiary of the SPE.

As to finalization of this project, the FASB expects to issue an Interpretation in the fourth quarter of this year. The accounting guidance would be effective immediately upon issuance of the Interpretation for new SPEs. Companies with SPEs that existed prior to issuance of the Interpretation would be required to apply the guidance to the existing SPEs at the beginning of the first fiscal period after March 15, 2003. Calendar year-end companies would need to apply the guidance on April 1, 2003.

The Exposure Draft may be accessed from the FASB’s website at or by telephoning the FASB Order Department at 800-748-0659.

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