The decline and fall of Enron and its auditors were well publicized. Enron used special-purpose entities (SPEs) to keep from reporting certain liabilities on their balance sheet. You may be surprised to know that their reporting of these entities was consistent with GAAP at that time.

Subsequently, FASB Interpretation Number 46 (revised December 2003), or FIN 46(R), was issued to address reporting of these types of entities, which are now referred to by the more general name of variable-interest entities (VIEs). This standard requires companies to consolidate VIEs based on risks and rewards rather than percentage ownership.

• Evaluate whether these guidelines will increase the quality of information investors receive about risks related to VIEs.
• Rationalize and justify your position using Enron or any other companythat either uses or has used SPEs or VIEsas an example.