Part 2 - FSP FAS 140 and FIN 46R

Here is the second part of the new FSP FAS 140 and FIN 46R.

Appendix C – Disclosure Requirements on Interpretation 46(R) for Public Enterprises

The objectives of these disclosures are to provide financial statement users with an understanding of the following:

1. The significant judgments and assumptions made by an enterprise in determining whether it must consolidate a variable interest entity (VIE) and/or disclose information about its involvement in a VIE.
2. The nature of restrictions on a consolidated VIE’s assets including the carrying amounts of such assets.
3. The nature of, and changes in, the risks associated with an enterprise’s involvement with the VIE.
4. How an enterprise’s involvement with the VIE affects the enterprise’s financial position, financial performance, and cash flows.

In determining whether to aggregate the disclosures for VIEs, the reporting entity should consider the quantitative and qualitative information about the different risk and reward characteristics of each VIE and the significance of each VIE to the enterprise.

An enterprise that is a,) a primary beneficiary in a VIE, b.) holds a significant variable interest in a VIE but is not the primary beneficiary, or c.) that is a sponsor that holds a variable interest in a VIE shall disclose:

1. Its methodology for determining whether the enterprise is or is not the primary beneficiary.
2. If the conclusion to consolidate a VIE has changed in the most recent financial statements, the primary factors that caused the change and the effect on the enterprise’s financial statements.
3. Whether the enterprise has provided financial or other support during the periods presented to the VIE, that it was not previously contractually required to provide, including the type and amount of support, with situations where the enterprise assisted the VIE in obtaining another type of support and the primary reasons for providing the support.
4. Qualitative and qualitative information about the enterprise’s involvement with the VIE, including, but not limited to, the nature, purpose, size, and activities of the VIE, including how the entity is financed.

The primary beneficiary of a VIE that is a business shall provide the disclosures required by FAS 141(R).

The primary beneficiary of a VIE that is NOT a business shall disclose the amount of gain or loss recognized on the initial consolidation of the VIE.

In addition to disclosures required by other standards, the primary beneficiary of a VIE shall disclose the following:

1. The carrying amount and classification of the VIE’s assets and liabilities in the statement of financial position that are consolidated in accordance with FIN 46(R), including qualitative information about the relationship(s) between those assets and associated liabilities.
2. Lack of recourse if creditors (or beneficial interest holders) of a consolidated VIE have no recourse to the general credit of the primary beneficiary.
3. Terms of arrangements, giving consideration to both explicit arrangements and implicit variable interests, that could require the enterprise to provide financial support to the VIE, including events or circumstances that could expose the enterprise to a loss.

In addition to disclosures required by other standards, an enterprise that holds a significant variable interest or is a sponsor that holds a variable interest in a VIE, but is not the VIE’s primary beneficiary, shall disclose:

1. The carrying amount and classification of the assets and liabilities that relate to the enterprise’s variable interest in the VIE.
2. The enterprise’s maximum exposure to loss as a result of its involvement with the VIE, including how the maximum exposure is determined and the significant sources of the enterprise’s exposure to the VIE.
3. A tabular comparison of the carrying amount of the liability, as required by (1) above, and the enterprise’s maximum exposure to loss as required by (2) above. An enterprise shall provide qualitative and quantitative information to allow financial statement users to understand the differences between the two amounts.
4. Information about any liquidity arrangements, guarantees and/or other commitments by third parties that may affect the fair value or risk of the enterprise’s variable interest in the VIE is encouraged.

An enterprise that does not apply FIN 46(R) because of the condition described in paragraph 4(g) of FIN 46(R) (VIE created before 12/31/03 and enterprise is unable to obtain information from VIE) shall disclose the following information:

1. The number of entities to which FIN 46(R) is not being applied and the reason why information required to apply FIN 46(R) is not available.
2. The nature, purpose, size, and activities of the entity(ies) and the nature of the enterprise’s involvement with the entity(ies).
3. The reporting enterprise’s maximum exposure to loss because of its involvement with the entity(ies).
4. The amount of income, expense, purchases, sales, or other measure of activity between the reporting enterprise and the entity(ies) for all periods presented.

Appendix D – Disclosures for a Public Enterprise that is a Non-Transferor Sponsor or Non-Transferor Servicer of a Qualifying SPE

A public enterprise that is either a sponsor that holds a variable interest in a QSPE but was not the transferor or a servicer of a QSPE that holds a significant variable interest but was not the transferor shall disclose information that provides financial statement users with an understanding of its involvement with the QSPE.

In determining whether to aggregate the disclosures for QSPEs, the reporting entity should consider the quantitative and qualitative information about the different risk and reward characteristics of each QSPE and the significance of each QSPE to the enterprise.

In addition to the disclosures required by other standards, a public enterprise that is either a non-transferor sponsor of a QSPE that holds a variable interest in the QSPE or a non-transferor servicer of a QSPE that holds a significant variable interest in the QSPE shall disclose the following:

1. The nature, purpose, size and activities of the QSPE including how the entity is financed.
2. The carrying amount and classification of assets and liabilities related to the enterprise’s involvement with the QSPE.
3. Terms of arrangements that could require the enterprise to provide financial support to the QSPE, including events or circumstances that could expose the enterprise to loss.
4. The enterprise’s maximum exposure to loss as a result of its involvement with the QSPE, including how the maximum exposure is determined and the significant sources of the enterprise’s exposure to the QSPE.
5. Whether the enterprise has provided financial or other support during the periods presented to the QSPE that it was not previously contractually required to provide, including the type and amount of support, with situations where the enterprise assisted the QSPE in obtaining another type of support and the primary reasons for providing the support.

This is a lot but hopefully you will be able to narrow down the information that you need by the different categories.

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Linda is a CPA living in Southwestern Ohio, working as a research accountant for an investor-owned publicly traded utility company. She specializes in implementing new FASB and SEC requirements and FAS 133 derivative issues. In her role at the utility she has encountered many issues and written many memos, so send in your implementation and derivative issues and Linda will help figure out an answer.

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