Special Purpose Entities in Consolidation: Transparency and Risk under IFRS and US GAAP

This thesis examines the ways of consolidation of special purpose entities (SPEs) under international financial reporting standards (IFRS) and U.S. General accepted accounting principles (U.S. GAAP). It juxtaposes the single control model contained in IFRS 10/12 and the two-fold model contained in the ASC 810 of voting interest model and variable interest entity (VIE) model. These refer to the analysis of Transparency, Risk, and Accountability as it will ensure three dimensions that make financial statements useful by investors and regulators. As a pure guideline to match theory and practice, the 2024 annual report produced by HSBC using the IFRS and 2024 financial statements by JP-Morgan chase on the U.S. GAAP are reviewed. The results indicate that IFRS focuses on material substance and reputational risk whereas U.S. GAAP is based on prescriptive disclosure including maximum exposure, tablature and reconciliations. Both methods also have their advantages and disadvantages: the IFRS method allows basing judgments on a wider basis but introduces inconsistency; U.S. GAAP involves comparability at the expense of machine/compliance-based reporting. The thesis takes the conclusion that the standards would not allow true transparency. It relies on the violation and moral obligation in the process of disclosure preparation and utilization. The work thus adds to the discussion of international accounting convergence by demonstrating the fact that the notion of significance of financial reporting entails both integrity and accountability as much as it entails technical convergence.