Accountants monitoring last Wednesday’s Financial Account -ing Standards Board meeting noted that FASB has tentatively “loosened” some of the hard-line provisions in the Exposure Draft of proposed amendments to FAS 140. The redeliberations will continue this Wednesday.
In summary, it appears FASB will limit the requirements for legal isolation in a QSPE to the transferor which is including the transfer of assets in its financial statements, and not to affiliates of the transferor under certain conditions (such as affiliates that may be involved in the transaction but are not included in the transferor’s reporting statements).
Whether or not a transferor or affiliates will be allowed to provide support commitments is still being discussed, though, according to Ernst & Young’s On Call Advisory Accounting Alert, in transactions that do not reissue beneficial interests, there are no restrictions on transferor provided support commitments to QSPEs, so long as they do not violate legal isolation.
Also, there is a distinction being made between guarantees on the collection of QSPE assets and guarantees on the payment from the SPE to the beneficial interest holders. In addition, FASB seemed to narrow its concern with derivatives provided by a transferor, affiliate or agent, focusing now on arrangements that constitute a total-return swap.
FASB tentatively decided that a provision will be in place that does not allow Q status when one party to an SPE benefits incrementally over other parties by holding a combination of interests that does not produce the same aggregate benefit if held by separate parties, noted Deloitte & Touche’s Marty Rosenblatt in a email distributed following FASB’s meeting.
Rosenblatt questions how that comparison could be made operational.
According to a FASB staff member, the definition of the term “equity instrument” in the Exposure Draft will be based on the definition of “equity security” in Statement 115, but the word “instrument” will be still be used. Equity will only be permitted in a QSPE if it is held temporarily through the collection process of a financial asset.
The latest in FSPs…
Also, the board recently added FASB Staff Position FIN 46-e to its roster of positions out for comment associated with Financial Interpre-tation No. 46. This latest FSP proposes a deferral in implementation of FIN 46 for public companies that – to this point – have been unable to determine if an entity, which was established prior to Feb. 1, is a variable interest entity. The deferral would be limited to questionable VIEs that were not previously considered SPEs, and do not hold financial assets as defined in FAS 140.
The deadline for comments is Oct. 20. The deferral would allow companies to postpone applying the FIN 46 provisions until the first annual or interim reporting period ending after Dec. 15.
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