SPE's

Here is my understanding, please someone correct me if I am wrong. All SPE’s must either be classified as QSPE’s or VIE’s. Under GAAP, QSPE’s can remain off balance sheet, whereas VIE’s must be consolidated. Under IFRS, all must be consolidated.

yep.

Q is for qualifying - meaning qualifying to remain off-balance sheet. IFRS doesn’t have the notion of QSPE, only USGAAP does, so under IFRS, everything has to be consolidated.

All SPE’s must either be classified as QSPE’s or VIE’s.

I’m sticking with it being close enough for the exam. Good points on why its incorrect, but I need to keep things more surface and broad.

Thanks, the thread is very helpful

VIE- more debt less equity therefore equity shareholder don’t have much decision making power, they receive little profits debt financiers worry about risk since equity is small so primary beneficiery takes the risk of absorbing loss but also takes residual profits consolidate under both US GAAP and IFRS consolidation reduces reporting performance ratios of primary beneficiary company so, In US if you can , set up a QSPE By doing so you can avoid consolidation and the ratios are higher

I think several of you have touched on it, but what exactly makes a QSPE “Qualified”… I remember that there were a few requirements or something that the SPE had to fulfill in order to be considered a qualified SPE.

has to be a financial entity, that’s one

the shareholder gotta have majority of the risk, no guarantee clauses from the parent

Sponsor is bankruptcy remote. Sponsor doesn’t have effective control over the assets (touching on kevin’s point)

A QSPE can only hold financial assets (and the assets are usually receivables). As a legally separate, independent entity, the QSPE has total control of the assets transferred from the sponsor. Under U.S. GAAP, the sponsor can avoid consolidating asset securitizations by creating a QSPE. IFRS does not permit QSPEs.

so from reading the above and from my memory: SPE: must consolidate under IFRS; don’t have to under GAAP unless it’s also a VIE VIE: doesn’t exist under IFRS; must consolidate under GAAP QSPE: doesn’t exist under IFRS; under GAAP, way for a sponsor to relinquish control of the subsidiary by giving up risk rewards and therefore don’t have to consolidate under GAAP any errors?

the show NY Wrote: ------------------------------------------------------- > so from reading the above and from my memory: > > > SPE: must consolidate under IFRS; don’t have to > under GAAP unless it’s also a VIE > > VIE: doesn’t exist under IFRS; must consolidate > under GAAP > > QSPE: doesn’t exist under IFRS; under GAAP, way > for a sponsor to relinquish control of the > subsidiary by giving up risk rewards and therefore > don’t have to consolidate under GAAP > > any errors? Just reviewed it, and you’re right! You may want to look at the conditions for consolidating a VIE while it’s fresh too. insufficient at risk investment <10% sh lack decision making rights sh do not absorb losses sh do not receive expected residual returns Any violation of the above makes an SPE a VIE and it MUST be consolidated then. A QSPE that avoids consolidation must; (and by avoid consolidation, it means the company logs it via equity method right? Please advise) independent and legal separate entity from sponsor total control over assets only hold financial assets sponsor must have limited financial risk

Not “any violation of the above makes an SPE a VIE” it’s if any of the above apply, then it’s a VIE. Just sayin’

rellison Wrote: ------------------------------------------------------- > Not “any violation of the above makes an SPE a > VIE” it’s if any of the above apply, then it’s a > VIE. Just sayin’ word. Thanks man!

that was a great review of vie and qspe, thanks thanks to u i was able to retrieve them out of some ditch in the back of my brain

Glad I could help. To those people who don’t get it, well, the world needs ditchdiggers too!