Special Purpose Entities

Question 1

Special purpose entity

Answer 1

an entity that is created to accomplish a very specific business activity

Question 2

Benefits of SPE

Answer 2

• gives organization’s greater confidence to take risks (project is isolate and cannot impact regular operation)
• SPE can obtain debt financing at very favourable rates (less risk to the lender)

Question 3

How is control determined for SPE

Answer 3

based on who directs the key activities of the SPE. It is not based on control through share ownership

Question 4

Under IFRS 10, do entity’s need to consolidate the entities that it controls?

Answer 4

yes. They must consolidate regardless of the means of obtaining control

Question 5

When does an investor control a SPE

Answer 5

when it is exposed, or has rights, to variable returns from its involvement with the SPE and has the ability to affect those returns through its power over the SPE

Question 6

T or F: The equity investors of the SPE typically receive a guaranteed rate of return as a reward for providing the sponsor, or other primary beneficiary with contractual control of the SPE

Answer 6

TRUE

Question 7

Examples of variable interests

Answer 7

• Guarantee of debt
• Variable rate liability
• Service contracts