FASB Proposes Consolidation Principles for Special Purpose Entities
The Financial Accounting Standards Board ("FASB") proposed an interpretation (the "Interpretation") addressing when special purpose entities ("SPEs") should be consolidated with other entities for financial reporting purposes. As a general matter, FASB historically has based its consolidation principles on voting interests (e.g ., an entity is consolidated if another entity owns a majority of its voting interests). The Interpretation, which FASB expects will result in greater consolidation of SPEs, focuses on "variable interests" rather than voting interests, because SPEs often do not have a traditional voting interest structure. Variable interests are defined as the "means through which financial support is provided to an SPE and through which the providers gain or lose from activities and events that change the values of the SPE’s assets and liabilities." These variable interests may arise from contractual rights
