Preview

equity requirement of a qualifying SPE

Good Essays
Open Document
Open Document
541 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
equity requirement of a qualifying SPE
3. Before FIN 46 (R) became effective, the SPEs/conduits for securitization are rarely consolidated by their sponsors or transferors based on the consolidation rule of ARB 51. Answer the following:
(a) Discuss the consolidation guidance under ARB 51.
Under ARB 51, consolidated financial statements are usually necessary for a fair presentation when one of the companies in the group directly or indirectly has a controlling interest in the other companies. ARB 51 stated consolidation guidance as “usual condition for a controlling financial interest is ownership of a majority voting interest.”
i) The usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one entity, directly or indirectly, of more than 50 percent of the outstanding voting shares of another entity is a condition pointing toward consolidation. However, there are exceptions to this general rule. A majority-owned entity shall not be consolidated if control does not rest with the majority owner (for instance, if the entity is in legal reorganization or in bankruptcy or operates under foreign exchange restrictions, controls, or other governmentally imposed uncertainties so severe that they cast significant doubt on the parent’s ability to control the entity). ii) All subsidiaries—that is, all entities in which a parent has a controlling financial interest—shall be consolidated.

Supporting reference: ARB 51, Paragraph 1-3

(b) The qualifying SPE concept was introduced in SFAS 140 and a qualifying SPE is exempt from consolidation. Discuss the equity requirement of a qualifying SPE prior to FIN 46( R) and under FIN 46 (R).
Prior to FIN 46(R), due to an accounting rule established by the now-defunct EITF Issue 90-15, the sponsor of a SPE did not have to consolidate the assets and liabilities of the SPE as long as the equity interest of a third-party owner was at least 3% of the SPE's total capitalization.

You May Also Find These Documents Helpful

  • Better Essays

    WK 2 INDIVIDUAL ASSIGNMENT

    • 1450 Words
    • 5 Pages

    Sec 351 is satisfied because the requirements are met with Transferors Alice, Bob and Carla owning 88.2% of the Bear Stock…

    • 1450 Words
    • 5 Pages
    Better Essays
  • Good Essays

    Hrm/531 Week 3 Quiz

    • 1406 Words
    • 6 Pages

    Under Regulation D of the Securities Act of 1933, which of the following conditions apply to private placement offerings? The securities…

    • 1406 Words
    • 6 Pages
    Good Essays
  • Powerful Essays

    CHAPTER 21 PARTNERSHIPS SOLUTIONS TO PROBLEM MATERIALS | | | | |Status: | Q/P | |Question/ |Learning | | |Present |in Prior | |Problem |Objective |Topic | |Edition |Edition | | | | | | | | | | | | 1 LO 1 Partnership definition New 2 LO 2 General partnership versus LLC New 3 LO 1 Check-the-box regulations New 4 LO 2 Partnership tax reporting Modified 1 5 LO 2 Analysis of Income schedule Modified 1 6 LO 2 Partnership Schedule M-3 New 7 LO 3 Special allocations New 8 LO 3 Capital accounts New 9 LO 3 Inside versus outside basis New 10 LO 4 Comparison of corporate and partnership Unchanged 2 treatment 11 LO 4 Application of § 721 New 12 LO 4 Exceptions to § 721 New 13 LO 4 Disguised sale issue recognition Unchanged 4 14 LO 5 Initial costs of a partnership New 15 LO 6 Cash accounting method for partnerships New 16 LO 7 Economic effect test Unchanged 8 17 LO 8 Adjustments to partner’s basis Unchanged 9 18 LO 8 Liability allocations to basis Unchanged 10 19 LO 10 Guaranteed payments New 20 LO 8, 9, 14 Partnership advantages and disadvantages Unchanged 12 21 LO 4, 6, 7, Partnership formation and operations Unchanged 13 8, 9, 10 issues 22 LO 11 Basis in distributed property Unchanged 14 23 LO 11 Distribution ordering rules; liquidating New versus nonliquidating distributions 24 LO 11 Conceptual: tax results of distributions New 25 LO 12 Ramifications of sale of a partnership interest New Instructor: For difficulty, timing, and assessment…

    • 15165 Words
    • 61 Pages
    Powerful Essays
  • Satisfactory Essays

    HCC 40, PC 3: Court Case

    • 745 Words
    • 3 Pages

    Corcker May argue that each shareholders must announce that within 30 days they`re going to to make a deposition of their stock and within 30 days a special meeting of all of the stock holders shall be called by corporation which was not actually held.although two-third of the shareholders decided to merge with Booth Creek.because it was not a small corporations it was not possible to set restrictions on transferability of shares.…

    • 745 Words
    • 3 Pages
    Satisfactory Essays
  • Good Essays

    The questions facing us are the following: Because Florabama is a variable interest entity, what are the business activities of Florabama that most significantly impact the entity’s economic performance? And should the cost-plus arrangement between Saban and Florabama be considered in the determination of the consolidating entity? In this memo I will first discuss the issue of consolidation common to all alternatives, and then explain how Meyer Inc. or Saban Company could consolidate Florabama according to US GAAP. Finally, I will recommend which entity is the controlling interest, and in effect, should consolidate Florabama to its financial statements.…

    • 1029 Words
    • 5 Pages
    Good Essays
  • Powerful Essays

    2) Paste the correct actual paragraph from the FASB Accounting Standards Codification that answers the previous question.…

    • 1593 Words
    • 6 Pages
    Powerful Essays
  • Powerful Essays

    Since A Ltd. owns 45% of B Co. but maintains the majority of the voting power due to only about 70% of the total amount of available votes casted. This gives A Ltd. the control to decide on the operating and financial policies of B Co. This being said A Ltd. owns 45% interest in B Co and thus needs to account for that percentage of ownership appropriately using the proprietary model of consolidation. This will accurately and reliably reflect accounting information provided on the consolidate statements.…

    • 1403 Words
    • 6 Pages
    Powerful Essays
  • Better Essays

    Holding company: A company whose sole activity is to invest in other companies, at least one of…

    • 1775 Words
    • 8 Pages
    Better Essays
  • Better Essays

    Journal of Accountancy. (2009, June 12). FASB Issues Standards on Securitizations, SPEs. Retrieved from http://www.journalofaccountancy.com/Web/20091801…

    • 1076 Words
    • 5 Pages
    Better Essays
  • Satisfactory Essays

    According to Financial Interpretation 46, a company only has to consolidate its variable interest entities under certain conditions. Before enacting FIN 46, the entity had to be consolidated if the majority interest was over fifty percent of the voting rights. According to FIN 46, there is more basis than just voting rights that determine the need for consolidation, and even in the case where fifty percent voting interest is held, there are certain exceptions that allow an investing company to not consolidate. The definition of controlling interest is no longer dependent on a majority of voting rights, and we will examine each entity to determine if majority ownership exists, and if not, we determine if there is a basis for controlling interest. This basis includes identifying factors such as capitalization of the entity, rights to decision-making,…

    • 441 Words
    • 2 Pages
    Satisfactory Essays
  • Powerful Essays

    Accounting

    • 8672 Words
    • 35 Pages

    Q3-1 The basic idea underlying the preparation of consolidated financial statements is the notion that the consolidated financial statements present the financial position and the results of operations of a parent and its subsidiaries as if the related companies actually were a single company.…

    • 8672 Words
    • 35 Pages
    Powerful Essays
  • Satisfactory Essays

    There are several accounting practices involved, one concern was whether or not Special purpose entities by a corporation should or should not be consolidated with the corporation’s financial statements. Another concern would be the latitude allowing an agreement of non-exchange trade agreement between two parties for energy contracts. And the third concern would be giving out information to be compliance with legal regulations or workplace rules particularly to financial statements or management discussions and analysis.…

    • 316 Words
    • 2 Pages
    Satisfactory Essays
  • Better Essays

    Financial Accounting Standards Board. (1990, 12). Summary of Statement No. 106. Retrieved September 22, 2012, from FASB: http://www.fasb.org/summary/stsum106.shtml…

    • 1076 Words
    • 5 Pages
    Better Essays
  • Powerful Essays

    in the banking industry. Using a sample of 477 large mergers from 1980 to 1994, we ®nd…

    • 5499 Words
    • 22 Pages
    Powerful Essays
  • Powerful Essays

    Hindalco Novelis Merger

    • 6783 Words
    • 28 Pages

    ← "Acquisitions are not geography dependent. They depend on value-creation and will have to be in sync with existing businesses”…

    • 6783 Words
    • 28 Pages
    Powerful Essays