FASB Plays Hard Ball

August 6, 2002 (PLANSPONSOR.com) -The Financial Accounting Standards Board (FASB) has refused to delay new rules on controversial investment vehicles and detailed guidance for implementing its special purpose entities (SPE) rules.

Board Member Edward Trott said that FASB is reluctant to put off the effective date of the guidance on how to handle investment vehicles such as those that helped sink Enron, according to a BNA report.
Trott said “in this environment” – referring to the post-Enron era of scrutiny of accounting and corporate governance – “an effective date too far off is not going to work out.”

Also, a group of bankers that recently met with the FASB had suggested that the SPE rules should not be effective until six months after their issue in the fourth quarter of 2002.

New Consolidation Regulations

Existing SPEs will be subject to the tougher consolidation rules in the first fiscal quarter starting after March 15, 2003, according to FASB’s plans. Newly formed special purpose entities immediately will be in the scope of the guidance.

The authoritative guidance will describe under what circumstances special purpose entities should be consolidated, or have their activities, performance – and assets and liabilities – shown in the financial statements of the SPE’s parent company.

The planned rules are expected to lead to many more companies consolidating the special purpose entities that have been carried off their balance sheets, the BNA report said.

As far as another key post-Enron issue – how to handle stock options on a company’s balance sheet – FASB does not have project on stock-based compensation on its standard-setting agenda. However, it is expected to discuss starting a fast track, limited-scope effort to refine specific transition provisions of existing rules, which were issued in 1995.

That short-term project may be warranted in light of recent announcements by a growing list of companies that have committed to shifting from the disclosure-only policy of FASB No. 123 to counting stock options’ value as a charge against earnings, FASB said.