Game, set, match
April 4, 2008
FASB Votes to Eliminate Qualifying Special-Purpose Entities
Securitization Alert
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The Financial Accounting Standards Board
(“FASB” or the “Board”) voted Wednesday
to take steps to remove the qualifying
special-purpose entity (“QSPE”) concept
from Statement of Financial Accounting
Standards No. 140, Accounting for
Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities (“FAS
140”), and to remove the related scope
exception from FASB Interpretation No. 46,
Consolidation of Variable Interest Entities
(“FIN 46(R)”). Eliminating the QSPE concept
from FAS 140 and the scope exception under
FIN 46(R) will affect the manner in which
issuers of asset-backed securities (“ABS”)
account for securitization transactions. Any
proposed changes to FAS 140 and FIN 46(R)
will be subject to the FASB’s process for
public exposure of standards.
Under FAS 140, a securitization of financial
assets is treated as a sale rather than as
a secured borrowing if the transferor is
considered to have relinquished control over
the transferred assets, and the transferred
assets will not be consolidated on the
transferor’s financial statements if the
securitization trust qualifies as a QSPE. The
FASB voted as part of its short-term project
to address practical accounting issues under
FAS 140 and, in response to a request by
the Chief Accountant of the Securities and
Exchange Commission, to clarify the QSPE
guidance under FAS 140 in time for new
guidance to be effective no later than the
beginning of 2009. The FASB voted to remove
the QSPE concept from FAS 140 because,
members of the Board said, the FASB no
longer believes that the strict limitations on
QSPEs are practical in view of the amount
of discretion that servicers have over the
securitized assets in ABS transactions. Under
FAS 140, the activities of a QSPE must be
significantly limited, must be specified in
the documents under which the QSPE was
created, and may be materially changed only
with the consent of a majority of the nontransferor
holders of the beneficial interests
in the QSPE.
The FASB is expected to release exposure
drafts of proposed revisions to FAS 140
and FIN 46(R) for public comment by the
end of June 2008. The FASB has not yet
addressed the effective date of any proposed
amendments to FAS 140.
Removing the concept of QSPEs from
FAS 140 will eliminate the relevant scope
exception for QSPEs under FIN 46(R). The
interpretive accounting guidance in FIN
46(R) describes the conditions under which
an entity would be required to consolidate
its interest in a securitization trust onto the
entity’s financial statements. At a meeting
next week, the FASB plans to discuss
reconsidering certain aspects of FIN 46(R).
There are several issues that the FASB would
need to address regarding how the risks
and rewards associated with an interest in
securitized assets should be analyzed under
FIN 46(R).
We encourage you to consult a certified
public accountant if you have any questions
on accounting for transferred financial assets
under FAS 140. Please feel free to contact
McKee Nelson LLP if you have any questions
regarding legal aspects of securitization
transactions.
Important Note: This Securitization Alert
is not intended to provide accounting
advice or guidance and is provided for
purely informational purposes. |
