ACCOUNTING
FASB Eyes SPEs for Special Treatment
| CFO (The Magazine for Senior Financial Executives) November 1997 -- So you thought your off-balance-sheet real estate and equipment leases were beyond the view of the Financial Accounting Standards Board's prying eyes? Think again. Recent discussions at FASB suggest the debte over the fate of special-purpose entities (SPEs), the trusts and corporations that hold many off-balance-sheet leases, is far from over.
The board has decided to include in its consolidation project specific consideration of when to consolidate SPEs, and new rules on how to account for nonconsolidated SPEs. "A participant in an SPE may have certain rights or obligations," says Tony Cope, an FASB member and the consolidation project task force chairman. "The question we're wrestling with is: How should those be accounted for? We do think they need to be shown on the balance sheet." |
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When FASB released its exposure draft on consolidation policies and procedures in late 1995, the leasing community grimaced. It seems it found the definition of control "so broad that it created a lot of unintended consequences for many companies," says Craig Lund, principal of Lund Financial, in San Jose, Calif., a real estate finance adviser.
The leasing market responded to the 1995 draft by moving decisively away from SPEs in leasing structures, says William Bosco, vice president in Citicorp's Global Equipment Finance Group and chairman of the accounting committee of the Equipment Leasing Association. But after discussions with board staff and members over the last year, "people are more comfortable doing SPE structures because the new definition of control in the consolidations project is not likely to emcompass all of them," he says.
ON STRUCTURED FINANCE 
Contact: Craig Lund at Lund Financial Corporation (408) 280-7500 One Almaden Boulevard, Suite 640 San Jose, California 95113 Or: Mike Smith at (410) 750-8900 10440 Little Patuxent Parkway, Suite 300 Columbia, Maryland 21044 |
But inclusion of new accounting for unconsolidated SPEs could add yet more complexity to structures leases. Asks Bosco, "Why do we need different rules for a lease held by an SPE if it has the same terms and conditions of a straight lease?"
Counters Cope, "What we want is consistent treatment of SPEs in the context of our new definition of control." FASB hopes to issue its new draft by next June. --Ian Springsteen
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