FASB Plans to Clarify CDOs

The Financial Accounting Standards Board wants to bring more clarity to some of the complex credit derivatives that contributed to the financial crisis.

FASB has proposed amending the accounting and reporting requirements of Paragraph 14B of Statement 133 to provide clarifying language regarding when embedded credit derivative features, including those in collateralized debt obligations and synthetic CDOs, are not considered embedded derivatives subject to potential bifurcation and separate accounting. FASB hopes to resolve some of the potential ambiguity about the breadth of the embedded credit derivative scope exception in Paragraph 14B.

The board is asking for written comments on this proposal, from both those who agree and those who do not. Those who disagree are asked to describe their suggested alternatives, supported by specific reasoning.

Comments must be received in writing by Friday, Feb. 13, 2009. They can be e-mailed to director@fasb.org under the heading “File Reference: Proposed Issue C22.”