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The “Accounting & Auditing Update” is written by Tammy Whitehouse, a veteran business writer who has been a regular contributor to Compliance Week since 2005. Her work has also appeared in industry journals and periodicals including Journal of Business Strategy, Strategy & Leadership, Compensation & Benefits Review, Inc, Buyside, and myriad others. Whitehouse welcomes questions and comments from readers; she can be reached via email at twhitehouse@complianceweek.com.

 

March 4, 2010

Investment Companies Get Deferral on Consolidation

The Financial Accounting Standards Board has finalized a deferred effective date for investment companies in complying with new consolidation rules intended to bring more assets on to corporate balance sheets.

FASB recently added Accounting Standards Updated No. 2010-10 to its Accounting Standards Codification to defer the effective date of the consolidation requirements of Financial Accounting Statement No. 167, which have been folded into the Codification under Topic 810 Consolidation. The deferral applies only to companies that meet the criteria of an investment company, however, meaning it does not apply to a reporting unit that has either a direct or in indirect obligation to fund any losses that could potentially be significant to the entity.

FASB said the deferral does not apply to interests in securitization entities, asset-backed financing entities, or entities that once held the designation of qualifying special-purpose entities. Those, in fact, are precisely the vehicles FASB had in mind for bringing on the balance sheet when it wrote FAS 167 to curb off-balance-sheet abuses.

After FASB approved the original standard, it started hearing concerns that it produced a different outcome for investment companies than the International Accounting Standards Board likely would pursue for international rules. In addition, and perhaps even more importantly, the new rule also produced some unintended consequences for investment companies, whose investment managers would be required under the new rule to consolidate onto their corporate balance sheets investment funds that they manage.

That’s because the new standard requires consolidation based on a control concept, said Jay Hanson, national director of accounting for McGladrey & Pullen. “That just didn’t make any sense,” he said, so the board agreed to carve investment companies out of the requirement for at least a year while it re-examines how to address the concern.

“The deferral is quite limited,” Hanson said, applying only to entities that have all the attributes of investment companies. Every other entity – where the standard was aimed in the first place – is required to comply with the original effective date, which is for all interim and annual periods beginning after Nov. 15, 2009.

Posted by: twhitehouse @ 3:27 pm

Filed under: Consolidation, FASB, Uncategorized

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