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Breaking News: FASB to Propose Deferral of FAS 167 for Certain Investment Entities and Amended Guidance on Whether Certain Fees Represent a Variable Interest
Source:
PricewaterhouseCoopers
Author name:
PwC assurance services
Published:
11/11/2009
Summary:
At the November 11 FASB meeting, the Board decided to propose a deferral of FAS 167, Amendments to FASB Interpretation No. 46(R), for asset managers that would allow them to apply the current accounting guidance to investment entities that have the attributes of entities subject to ASC 946 (the "investment company guide"). However, as proposed, an investment entity would not be eligible under the deferral if the asset manager has an obligation to fund potentially significant losses of the entity or has an interest in the entity that absorbs a disproportionate share of the entity’s losses. The FASB also decided to propose amendments to its guidance on whether a decision-maker or service-provider’s fee represents a variable interest.
Full article:
Deferral of FAS 167 for Certain Investment Entities
At today's FASB meeting, the Board decided to propose a deferral of FAS 1671, Amendments to FASB Interpretation No. 46(R), for asset managers that would allow them to apply the current accounting guidance to investment entities that have the attributes of entities subject to ASC 946 (the "investment company guide"). However, as proposed, an investment entity would not be eligible under the deferral if the asset manager has an obligation to fund potentially significant losses of the entity or has an interest in the entity that absorbs a disproportionate share of the entity’s losses. It is the Board’s intention that securitization, asset-backed financing, collateralized debt obligations, and qualifying special-purpose entities are unlikely to qualify while many mutual funds, hedge funds, private equity funds, venture capital funds, and certain mortgage REITs likely would qualify for this deferral. The FASB also decided to propose a deferral from applying FAS 167 to money market funds subject to Rule 2a-7 of the Investment Company Act of 1940. Asset managers would continue to apply the applicable existing guidance to those entities which qualify for the deferral — i.e., either current ASC 810-10 (formerly FIN 46(R)) or ASC 810-20 (formerly EITF 04-5).
This proposed deferral would allow the FASB and IASB to jointly develop an accounting model that considers the relationship between asset managers and the investment structures they manage as part of their broader consolidation project.
Amendment to Guidance on Whether a Decision-Maker or Service-Provider’s Fee Represents a Variable Interest
At today’s meeting, the Board also decided to propose certain amendments to the guidance in paragraph B22 of FAS 167 as follows:
- Clarify that any reference in paragraph B22 to more than an insignificant amount of the entity's expected variability is not intended to imply that a solely quantitative approach be used in assessing the criterion. The Board noted that this threshold should be interpreted as being broadly consistent with that used when determining the primary beneficiary.
- Clarify that related parties should be considered in applying all of the criteria in paragraph B22, and not only paragraph B22(c), as was previously interpreted.
Comment Period and Effective Date
The FASB plans to issue a proposed Accounting Standard Update with a 30-day public comment period, and a proposed effective date coinciding with adoption of FAS 167 (i.e., January 1, 2010 for calendar year-end companies).
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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