International briefing - Special purpose entities

The FASB has issued an exposure draft, Qualifying Special-purpose Entities and Isolation of Transferred Assets, which proposes amendments to FAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. The purpose is to provide specific guidance on the accounting for transfers of financial assets from a company to an off-balance sheet structure known as a qualifying special-purpose entity (QSPE).

The proposal would change the requirements that an entity must meet to be considered a QSPE, a structure often used by companies to securitise financial assets. The proposal prohibits an entity from being a QSPE if:

•   the company that transfers assets to the entity enters into a commitment (such as a financial guarantee, liquidity commitment or total return swap) to provide additional cash or other assets to fulfil the QSPE's obligations to its beneficial interest holders;

•   the entity can reissue beneficial interests and any party involved with the entity has certain risks or combinations of risks and decision-making abilities; or

•   the entity holds equity instruments, such as shares or partnership interests.

The ED also seeks to clarify the requirements in FAS 140 relating to legally isolating assets and surrendering control of assets.

The ED can be downloaded from Comments are requested by 31 July 2003.

International briefing is compiled by David Cairns, a consultant on international financial reporting issues and author of Applying International Accounting Standards (Tolleys, October 2002) and the International Accounting Standards Survey 2000 (

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