• Register
Search Questions / Answers

Welcome to AccountantAnswer Forum, where you can ask questions and receive answers. Although you need not be a member to ask questions or provide answers, we invite you to register an account and be a member of our community for mutual help. You can register with your email or with facebook login in few seconds

Get AccountantAnswer App


SIC 12 provides other indicators of control as defined in IAS 27 for Special Purpose Entities (SPEs). SPEs should be consolidated where the substance of the relationship indicates that the SPE is controlled by the reporting entity. This may arise even where the activities of the SPE are predetermined or where the majority of voting or equity are not held by the reporting entity.

Can someone explain this with an example?
in IAS 27 - Separate Financial Statements by
retagged by

1 Answer

0 votes
A special purpose entity is a legal entity (usually a limited company of some type or, sometimes, a limited partnership) created to fulfill narrow, specific or temporary objectives. A special purpose entity may be owned by one or more other entities and certain jurisdictions may require ownership by certain parties in specific percentages. Often it is important that the SPE not be owned by the entity on whose behalf the SPE is being set up. Like a company, an SPE must have promoter(s) or sponsor(s).

Securitization: SPEs are commonly used to securitise loans (or other receivables). For example, a bank may wish to issue a mortgage-backed security whose payments come from a pool of loans. However, to ensure that the holders of the mortgage-back securities have the first priority right to receive payments on the loans, these loans need to be legally separated from the other obligations of the bank. This is done by creating an SPE, and then transferring the loans from the bank to the SPE.

Source: http://en.wikipedia.org/wiki/Special_purpose_entity