At its Board meeting on October 8, the FASB decided to defer to the fourth quarter from the third quarter the implementation date for Interpretation No. 46, Consolidation of Variable Interest Entities, issued earlier this year. This deferral only applies to variable interest entities that existed prior to February 1, 2003. The complete text of the deferral will be available on the FASB website on October 10, 2003.
The FASB believes that additional time is needed for companies and their auditors to complete the evaluation of existing variable interest entities and to determine which of those entities are required to be included in their consolidated financial statements.
The requirements of Interpretation 46 applied immediately to variable interest entities created after January 31, 2003, and those situations are not subject to the deferral. Pursuant to this deferral, public companies must complete their evaluations of variable interest entities that existed prior to February 1, 2003, and the consolidation of those for which they are the primary beneficiary for financial statements issued for the first period ending after December 15, 2003. For calendar year companies, consolidation of previously existing variable interest entities will be required in their December 31, 2003 financial statements. While many companies may need the additional time being allotted, earlier application of Interpretation 46 is encouraged.
In January 2003, the FASB issued Interpretation 46 to improve financial reporting for variable interest entities, off-balance sheet structures that often have highly complex arrangements. The objective of Interpretation 46 is to improve financial reporting by companies involved with variable interest entities by requiring that a variable interest entity be consolidated by the company that is subject to a majority of the economic risks and/or rewards related to that entity.