Norwalk, Conn. (June 12, 2003) -- The Financial Accounting Standards Board has issued an exposure draft that would amend a portion of FASB Statement 140 to provide specific guidance on accounting for transfers of financial assets to a qualifying special purpose entity, such as a corporate trust.

Statement 140 describes how and when businesses should account for the transfer of financial assets. The exposure draft only addresses amending the section that deals with QSPEs.

The proposal would change the requirements that an entity must meet to be considered a QSPE, in an effort to ensure they are used properly.

“The biggest issue [with Statement 140] was dealing with when a QSPE can issue and reissue beneficial interests, but instead we said ‘OK, reissue all you want but make sure no single party is in a position to benefit from it,’” said Ronald Lott, senior project manager at FASB. “A QSPE is supposed to be an independent entity and there are certain relationships people should and should not have with it.”

The guidance would improve the accounting for QSPEs by:

  • Prohibiting an entity from being a QSPE if a company that transfers assets to it enters into a commitment (such as a financial guarantee, liquidity commitment or total return swap) to provide additional cash or other assets to fulfill the QSPE's obligations to its beneficial interest holders
  • Prohibiting an entity from being a QSPE if any party involved with it has certain combinations of risks and decision-making abilities.
  • Prohibiting an entity from being a QSPE if it holds shares or partnership interests
  • Clarifying certain of the requirements in Statement 140 related to isolating assets and surrendering control of assets

The exposure draft is available on The comment period ends July 31, 2003, and will be followed by a public roundtable meeting to be announced at a future date.-- Seth Fineberg

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