FASB Issues ASU Affecting Investment Management Industry

by Leroy Baker, Tax-News.com, New York

31 December 2009

The Financial Accounting Standards Board (FASB) has issued an Accounting Standards Update (ASU) on Topic 810: “Consolidation,” arising from a consensus of the Emerging Issues Task Force. The ASU deals with amendments to Statement 167 for certain investment funds.

The amendments affect the investment management industry, in particular:

• Investment companies as specified in Topic 946;
• Companies for which it is industry practice to apply measurement principles for financial reporting, which are consistent with Topic 946; and
• Other companies with interests that are required to comply with Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds or similar legislation.

The requirements in Statement 167 would be deferred for such companies except in situations where there is an explicit or implicit obligation to fund significant actual losses.

Also excepted from this deferral are securitization entities, asset-backed financing entities and those formerly considered as qualifying special purpose entities.

Those qualifying for deferral would continue to be assessed under the overall guidance on the consolidation of variable purpose entities in Sub-Topic 810-10 (before its amendment by Statement 167) or other applicable consolidation guidance.

This ASU would also clarify the requirements for evaluating whether a fee is a variable interest for those companies that do not qualify for deferral of the requirements of Statement 167.

Both public and non-public companies would be required to provide the disclosures under Statement 167 for all variable interest entities in which they hold a variable interest.

The ASU would allow the FASB to work with the IASB in developing consistent consolidation guidance.

The amendments would be mandatory for fiscal periods beginning on or after November 15, 2010, coinciding with the effective date for Statement 167. Early application is not permitted. Comments on this ASU should be submitted by June 1, 2010.

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