According to Nomura Securities, certain provisions of the Public Company Accounting Reform and Investor Protection Act signed by President Bush last week could pose a threat to the use of off-balance-sheet accounting treatment for structures including swaps, synthetic leases and securitizations. One provision states that companies must disclose all "material" off-balance-sheet transactions in quarterly reports.

"[Items] reveal that Congress is generally dissatisfied with the present treatment of off-balance-sheet transactions under [Generally Accepted Accounting Principles]," Nomura researchers write. "However, it is not clear whether that dissatisfaction extends to the treatment of securitization transactions, particularly asset-backed commercial paper programs and collateralized debt obligations. An important potential effect of the new law is that it may influence the view of the Financial Accounting Standards Board (FASB) as it grapples with off-balance-sheet accounting issues on its own. In light of the new law, it is somewhat more likely than before that FASB will adopt a tough stance on the issue of consolidating special purpose entities under FAS 94."

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