FASB today issued a media advisory that it expects to issue three separate exposure drafts by end of next week relating to FAS 140, FIN 46 and disclosures on the above two pronouncements.
The exposure draft on FAS 140 which deals with Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, aims to eliminate the Q entity or rather the Qualifying Special Purpose Entity, thus making the securitization process as a single step transaction. While the industry acknowledges that the Q entity had a hand in Enron and of late the sub-prime mortgage crisis, the Big 2 F's have reasons to worry as it can inflate their balance sheets by rewriting a lot of the portfolio back into their books. This could potentially alter a lot of financial ratios, the most important being the capital adequacy ratio.
Analysts have suggested as close to as $5 trillion could come back into the books of various financial institutions if the changes are bought into effect by the end of this year.
The FASB's last attempt to rewrite FAS 140 met with a lot of resistance with close to 50+ objection letters coming from various industry forums.
The exposure drafts would be available in the forthcoming documents soon to be released by the FASB.
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