FASB issues statement on accounting for certain financial instruments, exposure draft on special-purpose entities.The Financial Accounting Standards Board Financial Accounting Standards Board (FASB) Board composed of independent members who create and interpret Generally Accepted Accounting Principles (GAAP). has issued Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. The statement improves the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity. This new statement requires that those instruments be classified as liabilities. Statement 150 affects the issuer's accounting for various types of freestanding free·stand·ing adj. Standing or operating independently of anything else: a freestanding bell tower; a freestanding maternity clinic. financial instruments. It does not apply to features embedded Inserted into. See embedded system. in a financial instrument that is not a derivative in its entirety. It also requires disclosures about alternative ways of settling the instruments and the capital structure of entities, all of whose shares are mandatorily redeemable. Most of the guidance in Statement 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. For private companies, mandatorily redeemable financial instruments are subject to the provisions of this statement for the fiscal period beginning after Dec. 15, 2003. Due to the early effective date of most provisions of Statement 150, the full text of the document is now available on the FASB's Web site (www.fasb.org). Printed copies have been mailed to subscribers. Copies also are available from the FASB Order Department; call 800/748-0659. In another action, the FASB issued an exposure draft titled Qualifying Special-Purpose Entities Special-Purpose Entity A financing technique in which a company decreases its risk by creating separate partnerships, rather than subsidiaries, for certain holdings and solicits outside investors to take on the risk. and Isolation of Transferred Assets, which would amend FASB Statement FASB Statement A standard set by the Financial Accounting Standards Board regarding a financial accounting and reporting method. Essentially, FASB statements determine the acceptable accounting practices that Certified Public Accountants use in reporting No. 140, Accounting for Transfers and Servicing of Financial Assets Financial assets Claims on real assets. and Extinguishments of Liabilities. The purpose of the proposal is to provide more specific guidance on the accounting for transfers of financial assets from a company to an off-balance-sheet structure known as a qualifying special-purpose entity. The proposal would change the requirements that an entity must meet to be considered a QSPE QSPE Qualifying Special Purpose Entity . Among other things, the guidance would prohibit an entity from being a QSPE if a company that transfers assets to the entity enters into a commitment to provide additional cash or other assets other assets Assets of relatively small value. For financial reporting purposes, firms frequently combine small assets into a single category rather than listing each item separately. to fulfill the QSPE's obligations to beneficial interest holders, or if it holds equity instruments such as shares of partnership interests. In addition, the proposed statement would clarify certain of the requirements in Statement 140 related to legally isolating assets and surrendering control of assets. A copy of the exposure draft is available from www.fasb.org. Comments are due July 31; a public roundtable meeting will be announced at a future date. |
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