Corporate off-balance sheet transactions that used special-purpose entities (“SPEs”) facilitated the expansion of structured finance during the years leading up to the Great Recession. Specifically, SPEs conferred bankruptcy remote, liquidity, leverage and interest rate risk benefits on their sponsors, resulting in the growth of securitization and the asset-backed commercial paper markets. To obtain these benefits, sponsor firms needed to avoid recognizing SPEs' assets and liabilities on their balance sheets. This avoidance depended on whether the accounting rules treated the transfer of assets between a sponsor and its SPE as a true sale or a loan.The Financial Accounting Standards Board's (“FASB”) deficient accounting rules that governed the true sale treatment between SPEs and their sponsoring firms increased the information asymmetries, over-leveraging and risk-retention problems that flowed through the securitization pipeline and shadow banking system. This article first provides a description of FASB's changes to the true sale and consolidation rules of SPEs prior to the Great Recession. It then shows that FASB's rules failed to appropriately regulate SPEs in two ways: first, FASB created a flawed concept known as a qualified special-purpose entity (“QSPE”). By meeting a few requirements, sponsors could set-up QSPEs, which automatically received true sale treatment. FASB's rules allowed sponsors to retain residual interests in their QSPEs without simultaneously accounting for the risks on their financial statements. Second, FASB failed to address the well-known problem of sponsor firms providing implicit recourse for their off-balance sheet SPEs. When the recession surfaced and numerous SPEs began collapsing, many financial institutions chose to honor their implicit recourse agreements and bailout their failing SPEs. This resulted in significant unaccounted for losses to sponsor firms. The article proceeds by explaining the ramifications of FASB's failure and concludes by discussing recent remedial actions.