Less than a year since Financial Interpretation No. 46 was published, it appears the Financial Accounting Standards Board is ready to drill out another Exposure Draft, this one regarding proposed amendments and modifications to the eight-month old set of rules that have, some would argue, been a chest wound to an industry already shrugging off a down credit cycle and seemingly every other imaginable disaster (see Spiegel story, p. 4).

What's most troubling, according to one accounting source, is that FASB does not intend to defer the implementation date, currently Sept. 30, despite acknowledging a host of confused issues in the current rule, plus several staff positions (FSPs) still out for commentary, and the fact that segments of the current rule will be re-exposed in the next draft.

Cited from a roundup of last week's meeting from Ernst & Young, "The Board tentatively agreed to require the effects of the proposed amendment, once finalized, to be adopted retroactively to the date of initial adoption of FIN 46 (i.e., to require restatement of previously issued financial statements if adoption of the amendment results in a differing consolidation determination)."

"Are they going to put people in jail for certifying their statements, if they have to restate six months later," said an industry accountant that monitored the meeting. Apparently, the Board believes that there would be a degree of sympathy from the Federal regulators, namely the Securities and Exchange Commission, extended to restatements tied to ambiguous accounting rules, if they were to accept that argument. "I'm not sure that's the way Washington will react, and I'm certainly not sure that's the way [equity] investors will react."

"[Board member] Leslie Seidman made a pitch to defer the whole thing until January of 2004, with a good explanation of why, but was shut down," the source added. "The Board seems to refer to these modifications as minor clarifications.'"

Since the consolidation project became a top priority for FASB - following a string of front-page corporate scandals linked loosely to securitization buzzwords - it was generally understood that the Board was under political pressure to fix the loopholes and fix them fast. While the outsider's understanding of the market is improving - such that Enron Corp.'s abuse of SPEs and off-balance sheet technology is quite separate from the $1 trillion-per-year boon to liquidity provided by day-to-day securitization - it's more difficult to argue that some of the loopholes exploited by the energy trading giant were not facilitated by accounting measures designed in part for securitization.

This was evident in certain Enron transaction documents, where Enron's bankers made allusions to different Financial Standards (such as FAS 140) to qualify Enron's trash can-like SPEs for off-balance sheet treatment, etc. (see ASR 1/13).

It's also become harder to argue a boy-scout image of securitization, while instances of abuse and fraud continue popping up, the most notorious, perhaps, involving the sham deals of National Century Financial Enterprises.

Nevertheless, FASB's re-exposing significant portions of FIN 46 so soon after its release implies that the rules are flawed, and were perhaps fast-tracked to their own detriment. Is then FASB - by sticking to its guns - forcing the implementation of rules that they, in essence, recognize as flawed, and which will probably be changed in some capacity through an amendment?

Industry accounting guru Marty Rosenblatt, of Deloitte & Touche, whose technical bulletin follows, noted that the two new members of the Board in favor of a broad deferral were not members of the board when FIN 46 was crafted.

One of the greatest contentions following the January release of FIN 46 was how, exactly, these new provisions should be implemented. The document was widely criticized for being vague, conflicting at times, overly complicated and not operationally practical.

Significantly, many enterprises have already either 1) restructured their multibillion dollar ABCP conduits to keep what they could off-balance sheet, or 2) consolidated according to their own understanding of the rules, in many cases adding these assets to their balance sheets in financial statements and investor presentations.

At the very least - and this was pointed out in several of the comment letters aimed at FASB's proposed amendment to FAS 140, another troubling set of propositions for securitization - there has been significant resources and dollars spent conforming to and commenting on the several releases from the current accounting regime, which - at times - doesn't quite seem to know what it wants, or rather, what it will want eight months from now.

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