An examination of comment letters to the IASC: Special purpose entities

ABSTRACTWhile major strides toward the convergence of accounting standards have occurred, concern exists that self-interested political pressures, if effective, may create international accounting standards that are not always in the best interest of investors and others. This case study examines comment letters generated by an important accounting topic, Special Purpose Entities (SPEs), in order to gain further insight into whether concerns of political pressure in the development of international accounting standards have merit. Famous since Enron, SPEs are used in off-balance sheet financing vehicles that now involve trillions of dollars annually. During the period when the International Accounting Standards Committee (IASC) was trying to earn the support of the International Organization of Securities Commissions (IOSCO), the IASC’s Standing Interpretations Committee (SIC) issued Draft Interpretation 12 (DI-12), Consolidation of Special Purpose Entities. DI-12 required SPEs to be consolidated more frequently than under US GAAP.Although most respondents, including IOSCO, supported DI-12, about 25% adamantly opposed it. Opposition came from those in countries with more flexible rules on the consolidation of SPEs, including the staff of the Financial Accounting Standards Board and all other US letter writers. It is also possible that political considerations may have influenced some as Arthur Andersen and all banking interests opposed to DI-12 were heavily involved with SPEs. However, with the support of IOSCO and many others, the SIC’s final SPE standard was even stricter than originally proposed.