SFAS No. 167, Amendments to FASB Interpretaion No. 46(R)

The FASB issued Statement No. 167, Amendments to FASB Interpretation No. 46(R) in June 2009 to improve financial reporting by enterprises involved with variable interest entities. One of the reasons for this Statement is that the issuance of SFAS No. 166, Accounting for Transfers of Financial Assets eliminated the qualifying special-purpose entity concept which effected certain provisions of FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities. A second reason is that constituent are concerned about the application of certain key provisions of Interpretation 46(R), including those in which the accounting and disclosures under the Interpretation do not always provide timely and useful information about an enterprise’s involvement in a variable interest entity.

It is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited.

It retains the scope of Interpretation 46(R) and adds entities previously considered qualifying special-purpose entities, as the concept of these entities was eliminated in Statement 166.

This Statement amends Interpretation 46(R)

· To require an enterprise to perform an analysis to determine if the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity.
· To require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity.
· By replacing the quantitative-based risks and rewards calculation for determining which enterprise, if any, has a controlling financial interest in a variable interest entity with a qualitative approach which focuses on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. This approach will be more effective for identifying which enterprise has a controlling financial interest in a variable interest entity.
· To require enhanced disclosures for any enterprise that holds a variable interest in a variable interest entity.
· To add an additional reconsideration event for determining whether an entity is a variable interest entity when any changes in facts and circumstances occur such that the holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity’s economic performance. A troubled debt restructuring is such an event.

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