Recent changes to two US accounting standards could have a wide
public impact, according to one US accounting expert.
The US Financial Accounting Standards Board (FASB) has made notable
changes to FASB Interpretation No. 46(R), Consolidation of Variable
Interest Entities and Statement No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of
American Institute of Certified Public Accountants (AICPA) director
of accounting standards Dan Noll said although changes to Statement
140 are significant, particularly for financial institutions, 46R
is going to have a pervasive impact in the US for all
“A very typical small business owner, or private entity, [will be]
very much subject to Fin 46R. The private business community, these
are people who are not structuring [variable interest entities –
VIE] to avoid a balance sheet treatment, need to pay attention to
it,” he said.
Under existing GAAP, a company must consolidate any entity in which
it has a ‘controlling interest’. The update will alter how a
company determines if it must consolidate a VIE and introduce a
more qualitative test that will involve more consolidation of VIEs,
The changes to Statement 140 will also mean significant changes,
particularly for financial institutions. The amendment removes
qualifying special-purpose entities (SPE) and tightens the criteria
for when a company can take an asset off its balance sheet.
A SPE is typically used by companies to isolate financial risk and
was previously exempt from consolidation.
Noll said while the AICPA appreciated there was a sense of urgency
about finalising the standards, there could have been more
co-operation with the International Accounting Standards
The FASB is due to publish changes to both standards in June,
making them effective from the beginning of next year.