At last week's Financial Accounting Standards Board discussion on the consolidation project, board member John "Neel" Foster introduced a new perspective, called "View B," that could be another positive development for securitizations involving non-qualifying special purpose entities.

According to comments circulated by industry participants last week, the new perspective allows for consideration that certain SPEs have a risk diversification characteristic/purpose, involving several parties taking on different risks and obligations in a transaction. This interpretation, which presumably could be applied to CDOs and other securitizations, would further the view that, in certain classes of SPEs, no primary beneficiary can be identified.

"Neel did hold View B, and apparently his view prevailed with the rest of the board members," said a spokeswoman for FASB. "Ultimately other board members ended up agreeing with this."

Most notably, View B is a further acknowledgment that consolidation is not appropriate for every situation, a perspective that first became a significant component of the FASB consolidation discussions during the March 13 meeting.

"If the board members were in agreement that there are off-balance sheet lease transactions out there that ought to be on balance sheet, the view is that lease accounting should be changed, rather than trying to sweep in SPE consolidation, and using it as a fix for what is otherwise fundamentally developed accounting," said one accounting professional.

The next step, according to the FASB spokeswoman, is creating criteria for when and how to apply this interpretation. For one, in developing the View B perspective, FASB would also need to address how these individual risks and obligations, which are tied to the non-qualifying SPE, would be accounted for: e.g., whether to use a fair value method or current FASB guidelines (140, 115, etc.), sources said.

"It's not clear that fair value is an integral part of View B," said Jim Mountain of Deloitte & Touche. "I think it was indicated that was the preference, but it was expressed that FASB might be willing to entertain a modification of View B that would account for the rights and obligations according to today's authoritative guidance."

Mountain added that another issue being addressed is whether the beneficiary analysis on a particular non-qualifying SPE would be ongoing, such that if the characteristics of the parties' relationships with the SPE changed, so would the consolidation interpretation.

"I think there's a consensus that there needs to be guidance as to what happens after the initial adoption date," Mountain said. "They have to provide a framework that can be applied every time you prepare a financial statement.... as people who don't consolidate initially might have to later, and people that consolidate may have to deconsolidate as things change."

FASB agreed to convene again this Wednesday, May 15, to further discuss the new proposals.

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