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Breaking News: FASB to Consider Limiting the Impact of FAS 167 for Investment Managers
Source:
PricewaterhouseCoopers
Author name:
PwC assurance services
Published:
11/04/2009
Summary:
At today's FASB meeting, the Board indicated that they have decided to add a project to their agenda to consider changes to FAS 167, Amendments to FASB Interpretation No. 46(R), to address certain investment management industry concerns regarding consolidation under FAS 167. Both preparers and users have expressed concerns that consolidation by investment managers of the funds they manage will not enhance financial reporting and instead will obscure the portrayal of their financial performance.
Full article:
At today's FASB meeting, the Board indicated that they have decided to add a project to their agenda to consider changes to FAS 1671, Amendments to FASB Interpretation No. 46(R), to address certain investment management industry concerns regarding consolidation under FAS 167. Both preparers and users have expressed concerns that consolidation by investment managers of the funds they manage will not enhance financial reporting and instead will obscure the portrayal of their financial performance.
As discussed in today's education session, the Board will be asked at next week’s FASB meeting to decide between the following four alternatives:
Alternative A: Provide a narrow and potentially temporary deferral of FAS 167 for asset managers that would allow them to not consolidate investment entities that they manage for a fee (regardless of the level of capital they provide). Investment entities eligible for the deferral would be based on ASC 946 (the "investment company guide"). Under this alternative, the asset managers would continue to apply the applicable existing guidance -- i.e., either current ASC 810-10 (formerly FIN 46(R)) or ASC 810-20 (formerly EITF 04-5). This alternative would allow the FASB and IASB to consider whether asset managers should consolidate the investment structures they manage as part of their joint consolidation project.
Alternative B: Provide a scope exception for investment entities based on ASC 946.
Alternative C: Do not alter the guidance in FAS 167, but consider a requirement for enhanced disclosures in the financial statements, including a consolidating schedule which would provide information regarding fees and assets under management.
Alternative D: Modify the guidance that addresses whether asset manager arrangements are variable interests. Under this alternative, modifications would be made to paragraph B22 of FAS 167 and additional implementation guidance would be provided.
It was clear that the FASB staff and the Board members are currently leaning towards Alternative A. Accordingly, the FASB staff was asked to focus on this alternative. The Board members did ask the FASB staff to consider whether providing any financial support to the investment fund would prevent eligibility for the deferral under Alternative A.
If the Board decides to choose Alternative A or B, the FASB staff will also ask the Board whether there are specific disclosures that should be required. However, the FASB staff acknowledged that they would not be able to complete a disclosure project by year-end.
Separate from the alternatives discussed above, the FASB staff will recommend to the Board that they alter the guidance in paragraph B22 of FAS 167. Specifically they will recommend:
Clarifying the intent of the Board as to whether related parties should be considered in applying all of the criteria in paragraph B22.
Changing the language in paragraph B22(c) which states that the service provider cannot hold another variable interest that would absorb more than an insignificant amount of the entity's variability. The FASB staff believes that constituents are viewing this criterion as being a quantitative exercise consistent with the determination of the expected losses under the FIN 46(R) model, which was not the Board's intent.
Questions
PricewaterhouseCoopers clients that have questions about this Breaking News should contact their engagement partners. Engagement teams that have questions should contact the Financial Instruments team in the National Professional Services Group (973-236-7803).
Authored by:
Tom Barbieri
Partner
Phone: 1-973-236-7227
Email: thomas.barbieri@us.pwc.com
Craig Cooke
Director
Phone: 1-973-236-4705
Email: craig.cooke@us.pwc.com
1As of the date of this publication, the FASB had not yet incorporated FAS 167 in the Accounting Standards Codification (the Codification). We expect that the FASB will issue an Accounting Standards Update in the near future announcing that the guidance in FAS 167 has been added to the Codification. When codified, the guidance will be included in ASC 810, Consolidation.
This publication has been prepared for general information on matters of interest only, and does not constitute professional advice on facts and circumstances specific to any person or entity. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication. The information contained in this material was not intended or written to be used, and cannot be used, for purposes of avoiding penalties or sanctions imposed by any government or other regulatory body. PricewaterhouseCoopers LLP, its members, employees and agents shall not be responsible for any loss sustained by any person or entity who relies on this publication.
© 2009 PricewaterhouseCoopers LLP. All rights reserved. "PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP, a Delaware limited liability partnership, or as the context requires, the PricewaterhouseCoopers global network or other member firms of the network each of which is a separate and independent legal entity.
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