Academic journal article Journal of Accountancy

FASB Published Standards That Change the Way Entities Account for Securitizations and Special-Purpose Entities

Academic journal article Journal of Accountancy

FASB Published Standards That Change the Way Entities Account for Securitizations and Special-Purpose Entities

Article excerpt

FASB published standards that change the way entities account for securitizations and special-purpose entities. Both standards will require new disclosures.

FASB Statement no. 166, Accounting for Transfers o]Financial Assets, and Statement no. 167, Amendments to FASB Interpretation No. 46(R), will affect financial institution balance sheets beginning in 2010.

Statement no. 166 is a revision to Statement no. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. It will require more information about transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets. It eliminates the concept of a "qualifying special-purpose entity," changes the requirements for derecognizing financial assets, and requires additional disclosures.

Statement no. 167 is a revision to FASB Interpretation no. 46(R), Consolidation of Variable Interest Entities, and changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination is based on, among other things, an entity's purpose and design and a company's ability to direct the activities of the entity that most significantly affect the entity's economic performance.

FASB said in its press release that it began the projects after concerns were voiced by investors, the SEC, and The President's Working Group on Financial Markets.

"These changes were proposed and considered to improve existing standards and to address concerns about companies who were stretching the use of off-balance-sheet entities to the detriment of investors," FASB Chairman Robert Herz said in the release. …

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