Off-balance sheet accounting boils down to the simple question: should the sponsoring entity consolidate or not? From the 1980s to the 1990s it was common for sponsoring companies to avoid consolidations despite the fact that they maintained control of assets of special purpose entities (SPEs). Ultimately, this allowed sponsoring companies to hide losses and debt from their own financial statements. From a principles-based view, companies should have to report the assets of a SPE on their financial statements if the sponsoring company has maintained control of the assets, if the risk has not been transferred to the special purpose entities (SPE), and/ or the SPEs is not independent.
In 1996 the Financial Accounting Standards Board (FASB) issued FAS 125: Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities to address off-balance sheet (OBS) accounting. FAS 125 required the recognition of assets an entity controls and the liabilities it incurred after the transfer of financial assets. And subsequently, the entity must de-recognize assets and liabilities when it no longer controls them. FAS 125 also defined the
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The exception was that if the SPE contained only passive assets, then they could categorize it as a QSPE and did not have to consolidate it (Greenspan Slept as Off-Books Debt Escaped Scrutiny, 2008). Overall, the application of VIE did somewhat help provide more transparency by forcing more companies to have to consolidate. Even though the investor obtained less than a majority-owned interest, the variable interest entity (VIE) had to be consolidated if the sponsoring company controlled the majority of the variable interest; in other words is a primary beneficiary of a
Financial Accounting Standards Board. (1985). Statement of Financial Accounting Standards No. 86. Norwalk. Retrieved April 7, 2014, from http://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175820922177&blobheader=application%2Fpdf&blobheadername2=Content-Length&blobheadername1=Content-Disposition&blobheadervalue2=189998&blobheadervalue1=filename%3Dfas86.pdf&blobcol=url
For instance, the profit making health organizations have the main intention of creating profits for the shareholders while the nonprofit organizations are created to further their mission (Knowing the Differences Between Nonprofit and For-Profit Accounting , 2015). Just the way these organizations differ in their purpose and foundation, they also differ in their accounting procedures. Their financial statements are presented in different ways. The financial statements prepared at the end of a year are also very different. The main reason for these differences is because the two organizations follow different accounting standards. In this part, I will lay an explicit focus on how the two organizations present the various items in the owners’ equity statement (Baker,
The goal of the Codification is to simplify the organization of thousands of authoritative U.S. accounting pronouncements issued by multiple standard-setters. To achieve this goal, the FASB initiated a project to integrate and topically organize all relevant accounting pronouncements issued by the U.S. standard-setters including those of the FASB, the American Institute of Certified Public Accountants (AICPA), and the Emerging Issues Task Force (EITF)
The balance sheet provides a snapshot of a firm’s financial position at a specific point in time, by using the company’s Asset and Debit Equity.
Consolidated statement of profit or loss and other comprehensive income:- The purpose of this statement is to present total group earnings as a single entity without dividing the earnings attributable to nom-controlling shareholders and owners of the parent company. The revenues, expense and taxation of all companies included in the group are consolidated as a single entity regardless of the parents ownership in the subsidiary companies in order to provide results of the group as a whole. Similarly the entity concept is applied to consolidate all the components of other comprehensive income that are not permitted to be included in the profit or loss section. Consolidated comprehensive income is particularly useful when understanding the changes in the company’s fair value of assets.
Accounting is a way to provide information that” identifies, records and communicates the economic events of an organization”(Weygandt, J., Kimmel, P., & Kieso, D., 2012). In order to ensure that businesses and accountants produce similar financial statements, they are held to generally accepted accounting principles or GAAP standards (Weygandt, et.al. 2012). In addition to GAAP standards, the Sarbanes-Oxley Act of 2002 was passed by Congress to help reduce unethical behavior by large businesses (Weygandt, et. al., 2012). The combination of the two provides reassurance to stakeholders or interested parties that the financial statements are uniform and provide reliable data. This is of the utmost importance for a business to be successful.
The purpose of preparing the consolidated financial statements is in order to combine the identifiable assets and liabilities (and contingent liabilities) and equity of two separate entities. At the date of acquisition assets and liabilities are measured at their fair value in order to ensure that assets are not overstated and liabilities
What do you think is the most important life blood of a business? Is it profit, sales growth, or customer loyalty? While these are several important arteries of blood flow for a business to survive, they are not the heart which keeps the business alive. You can have all three and still go out of business if you do not have the one thing all companies need to live; which is cash! It takes cash to pay your employees, turn the lights on, open the door, and keep it open.
Financial Accounting Standards Board (FASB). Accounting Standards Codification TM. Financial Accounting Standards Board (FASB), 2010. Web. 16 May 2014.
Current Liabilities – Includes short-term payables and the current portion of long-term debt. Current liabilities are measured at their liquidation value.
In this paper, we review the balance sheet provided or XY Bank and cover the differences between a company and a bank’s balance sheet. Additionally we highlight why some of the balance sheet figures are what they are and look at loans and securities and cash levels held at the bank.
The overall purpose of cost accounting is to advise top administration and the management team on the most suitable and cost effective methods and actions to employ based on cost, capability and efficiencies of a given product or service. It can be defined as the method where all the expenditures used during execution of business activities are gathered, categorized, examined and noted down (Horngren & Srikant, 2000). Once these numbers are gathered and recorded the information is used to determine a selling price and/or to identify possible investment opportunities. Although the principal aim or function of cost accounting is to help the business administration with their decision making and business planning process, the cost accounting data
When financial statements consist of a parent company and its subsidiaries and combines them into one comprehensive financial statement, we refer to them as consolidated financial statements. Additionally, ownership interest in another company must be accounted for when a company owns all of another company or part of it. Moreover, depending on how much of the second company the first one owns, ownership can be accounted for by using methods such as: equity, cost, or acquisition method. So, how does consolidated financial statements play a role in corporations? What are the reasons and benefits for the consolidation of financial statements? What are the steps that are necessary to ensure the proper accounting? What are a few excerpts from
business (e.g. variable annuities, variable life insurance and pension products) are held in special accounts named Separate Account. A Separate Account is held separately from all other
Balance sheet account reconciliations are one of the oldest and most important accounting processes. Yet, in many companies they're underappreciated as an internal control over financial reporting. Before Sarbanes- Oxley many companies relegated this control to a corrective role; since the control operates after the financial reports are issued, it is effective only in identifying misstatements for correction.