The standards aim to facilitate improvement and global harmonization of procedures relating to the presentation of financial statements. 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.
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.
Control - the ability of an entity to direct the policies and management that guide the ongoing activities of another entity so as to increase its benefits and limit its losses from that other entity’s activities.
Autopilot – limited or decision-making ability of SPE by its charter to certain permitted activities.
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.
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.
Cash flows from the SPE’s operations of the project are to be used to pay its investors.
Also called , 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.
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 only.
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.