Board Drafts New Guidelines for SPEs

The Financial Accounting Standards Board, which sets accounting standards for U.S. companies, on Monday released a draft of new rules for so-called special-purpose entities, or SPEs.

How companies account for SPEs has come under scrutiny since the collapse of energy trader Enron Corp., which hid billions of dollars of debt in off-balance-sheet partnerships.

The accounting board said the objective of the proposed rules is to improve financial reporting by companies that use SPEs, not to restrict the use of SPEs. It is expected that if the proposal is implemented, more SPEs will be listed on corporate balance sheets than in the past.

The proposed new rules require that outside investors own at least 10% of an SPE before a company can keep the entity off its balance sheet. Current rules require outside investors to own 3%.

The hardest hit by the new guidelines would be SPEs set up for equipment and real estate leasing--which could put billions of dollars of assets and liabilities on the books of capital- and land-intensive industries such as auto and energy companies, said Robert Willens, an analyst at Lehman Bros.

Special-purpose entities came into the spotlight late last year as investors grappled with the billions in debt Enron managed to keep off its balance sheet through sophisticated partnerships.

The accounting board is seeking public comment on its proposal through Aug. 30.

Any changes finally adopted would be effective immediately for new SPEs. Companies that already have SPEs would be required to apply the rules at the beginning of the first fiscal period after March 15. Calendar year-end companies would need to apply the guidance on April 1.