Last week the Financial Accounting Standards Board, by a vote of four to three, rejected a suggestion that proposed modifications to FIN 46 not become effective until a complete package of necessary revisions or interpretations or reaffirmations are identified, debated, exposed and resolved, according to a person familiar with the situation. This surprised and disappointed collateralized debt obligation managers and securitization professionals, who wanted a deferral into next year to consider proposed changes for a rule they believe is misguided in its impact on the CDO market.
FIN 46 will require the consolidation of special purpose vehicles on the balance sheet of the firm or bank taking on most of the vehicle's risk. BlackRock provided an early example of the effects in October when the firm added $2 billion of investments and $2 billion of debt to its balance sheet. BlackRock disclosed it would cost $1 million to comply with FIN 46, an accounting source noted.
FIN 46 is proposed to be effective in the first quarter of 2004 for public companies. Any changes to previously reported FIN 46 accounting are to be reflected as a cumulative effect adjustment in the income statement, with restatement of prior periods permitted but not required, according to the FASB. "Until then, unless one of those four voting on the board sway, it looks like implementation will have to start by then," said the source.