Under current GAAP,the sponsor of a securitization entity (SE) will have to treat a securitization as a collateralized borrowing instead of a sale if it has

A) the power to direct the activities of the SPE that most significantly impact the SPE's economic performance.
B) the obligation to absorb significant losses or the right to receive significant benefits that potentially could be generated by the SPE.
C) both the power to direct the activities of the SPE that most significantly impact the SPE's economic performance and the obligation to absorb significant losses or the right to receive significant benefits that potentially could be generated by the SPE.
D) neither the power to direct the activities of the SPE that most significantly impact the SPE's economic performance or the obligation to absorb significant losses or the right to receive significant benefits that potentially could be generated by the SPE because securitizations are always treated as sales.

Question

Lorraine Fonseca · Accepted Answer

Final Answer : C, Explanation :  According to current GAAP, a sponsor of a securitization entity (SE) must treat a securitization as a collateralized borrowing instead of a sale if it has both the power to direct the activities of the SPE that most significantly impact the SPE's economic performance and the obligation to absorb significant losses or the right to receive significant benefits that potentially could be generated by the SPE. Therefore, choice C is the correct answer.

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