As the Financial Accounting Standards Board tinkers with amendments to its Statement 140 and Interpretation 46R, the FASB staff has issued a staff position that expands disclosures about corporate involvement with variable-interest entities and transferred financial assets.The FSP is a stopgap statement, and will likely become part of the more extensive amendments now being deliberated.

"Investors and users of financial statements expressed serious concerns about whether companies - financial institutions in particular - were fully and accurately reporting their involvement with special purpose entities," said FASB project manager Patricia Donoghue.

FASB expects to issue amendments to Statement 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and FASB Interpretation 46 (Revised), Consolidation of Variable-Interest Entities, in the second quarter of 2009. Redeliberations, based on an exposure draft of proposed changes, began in mid-December.

Until the amendments are issued, the FSP establishes GAAP. It does not change accounting, but it requires new disclosures about transferors' continuing involvements with transferred financial assets, and requires companies to provide additional disclosures about involvement with variable-interest entities.

The board decided to amend Statement 140 and FIN 46R after users of financial statements said that they were having difficulty perceiving the extent of a transferor's continuing interest in transferred financial assets. That difficulty soon proved painful as the financial crisis worsened and banks began to consolidate previously off-balance-sheet assets held in "special investment vehicles."

FIN 46R has come under scrutiny following the recent subprime mortgage losses. FASB constituents cited an inability to grasp the nature of an entity's involvement and maximum exposure and the current status of any exposure.

The FSP also expands the scope of entities covered under FIN 46R by calling for disclosures by a public enterprise that is a sponsor of a qualifying SPE that holds a variable interest in the qualifying SPE but was the transferor of financial assets to the qualifying SPE, and a servicer of a qualifying SPE that holds a significant variable interest in the qualifying SPE but was not the transferor.

Comment letters received after the board proposed the new staff position complained that it would be onerous to produce the newly required disclosures, but as investments failed, banks collapsed and the economy contracted, the board decided that the new disclosures could not wait.

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