The Financial Accounting Standards Board will meet again Wednesday to touch up its accounting plan for off-balance-sheet entities - a plan whose implementation banking officials and accountants have again asked the board to delay.
Its efforts to get FASB Interpretation No. 46, "Consolidation of Variable-Interest Entities," into practice have been well documented and widely criticized. It last released a draft on Oct. 31 - three weeks after delaying its effective date until fourth-quarter financial statements.
Now, FASB is hustling to get definitive guidance out in time for that deadline. But if it listens to the accountants that have to apply the rule, another delay seems likely.
Unresolved issues in the most recent proposal threaten to make it "an accounting standard that may not be fully operational," PricewaterhouseCoopers LLP wrote in a Nov. 30 letter. "We are concerned that there will be insufficient time for financial statement preparers and their auditors to adequately evaluate and implement FIN 46. … We urge the board to reconsider an additional deferral of the effective date of FIN 46 for public entities."
Two other Big Four accounting firms, Deloitte & Touche LLP and Ernst & Young LLP, also recommended deferral.
"We would support a deferral of the interpretation's provisions until the beginning of the first period beginning after June 15, 2004," E&Y wrote in a Nov. 26 letter.
The remaining Big Four firm, KPMG LLP, did not explicitly recommend a deferral but identified a host of issues that it said needed to be resolved.
All wrote exhaustive letters detailing what they called flaws in the draft in areas familiar to banking executives. Their questions go to the heart of the proposal, which they say leaves uncertainty in too many areas.
These include how to account for some commercial-paper conduits, troubled-debt restructurings, certain mutual funds and trusts, and municipal bond issues - not to mention what events would require companies to reconsider their consolidation decisions.
Accounting officials at Citigroup Inc., Bank of America Corp., J.P. Morgan Chase & Co., and Wachovia Corp. all wrote to the express their concerns.
"We evaluated tens of thousands of legal entities using a series of carefully reasoned interpretations on how to implement FIN 46," said Robert Traficanti, a vice president and deputy controller at Citigroup, in a Dec. 1 letter. "Some of the changes proposed in the exposure draft are fundamental changes that would require reevaluation of at least hundreds of these entities."
Citi and others also said the proposal just was not clear enough about what rules to apply to the entities and would probably lead to different answers for the same structure.
"While accounting firms may hold slightly different views on other topics, the differing views on FIN 46 are extremely significant, as they result in different consolidation or deconsolidation answers for the same transaction," said Randy Shearer, B of A's senior vice president for accounting policy, in his Dec. 1 letter.
