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Objectives and Techniques to consolidate Special Purpose Entities in International Financial Reporting Standards and US Accepted Accounting Principles

GRIN Verlag,
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Kurzbeschreibung

Seminar paper from the year 2003 in the subject Business economics - Accounting and Taxes, grade: 2,75, University of Hamburg, 46 entries in the bibliography, language: English, abstract: Until recently, many people in the accounting profession, never heard of SPEs.
Some who heard of these esoteric financing vehicles knew little about how.

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Titel: Objectives and Techniques to consolidate Special Purpose Entities in International Financial Reporting Standards and US Accepted Accounting Principles
Autoren/Herausgeber: Yelena Russakova
Ausgabe: 1., Auflage

ISBN/EAN: 9783638418799

Seitenzahl: 35
Produktform: E-Book
Sprache: Englisch

Seminar paper from the year 2003 in the subject Business economics - Accounting and Taxes, grade: 2,75, University of Hamburg, 46 entries in the bibliography, language: English, abstract: Until recently, many people in the accounting profession, never heard of SPEs.
Some who heard of these esoteric financing vehicles knew little about how they
operated or the accounting standards that guide the accounting and financial
reporting by companies who sponsor SPEs. Reports in the popular press that
preceded Enron's case in December 2001 introduced many accountants for the first
time to the topic of SPEs. Even though SPE financing vehicles have been around for
about two decades, they failed to capture the attention of many participants in the
mainstream of accounting discourse. The origin of SPEs can be traced to the way large international projects were
financed. Let’s say a company wants to build a gas pipeline in Kazakhstan and
needs to raise $1 billion. It may find that potential investors of the pipeline would want
their risk and reward exposure limited to the pipeline, and not be subjected to the
overall risks and rewards associated with the sponsoring company. In addition, the
investors would want the pipeline to be a self- supported, independent entity with no
fear that the sponsoring company would take it over or sell it. The investors are able
to achieve these objectives by putting the pipeline into a special purpose entity that is
limited by its charter to those permitted activities only5. Thus a common historical use
of SPE was to design it as a joint venture between a sponsoring company and a
group of outside investors. The SPE would be limited by charter to certain permitted
activities only – hence the name. Such an SPE is often described as brain-dead or at
least on auto-pilot. Cash flows from the SPE’s operations of the project are to be
used to pay its investors. Also called special purpose vehicles, SPEs typically are defined as entities created
for a limited purpose, with a limited life and limited activities, and designed to benefit
a single company. They may take the legal form of a partnership, corporation, trust,
or joint venture. SPEs began appearing in the portfolio of financing vehicles that
investment banks and financial institutions offered their business customers in the
late 1970s to early 1980s, primarily to help banks and other companies monetize,
through off-balance-sheet securitizations, the substantial amounts of consumer
receivables on their balance sheets. [.]

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