Jacob Myers Deloitte & Touche, LLP

sprocketflipPétrole et offshore

8 nov. 2013 (il y a 7 années et 10 mois)

305 vue(s)

Jacob Myers

Deloitte & Touche, LLP




FIN 46(R), FAS 140, FAS 167

Comparisons to newly issued FAS 167

Research tools

Case study

Audit issues

Questions & Comments


Jacob Myers

Deloitte Senior Manager

Assurance Services

Service clients in various industries

Financial Services, Software, Agriculture

St. Louis University


Accounting and Finance

Other organizations

St. Louis Variety Club

Finance Committee

St. Louis University Business School Alumni Board

Why Consolidation Guidance

Add transparency and consistency to the financial

Many firms were avoiding reporting debt and losses
from special purpose entity (SPE) deals


Recent credit crisis

Impact of consolidation in marketplace

Financial ratios

Loan covenants

Regulatory capital

Cost to implement guidance, processes

FIN 46(R)

Variable Interest Entities


Special Purpose Entities

SPEs, off balance sheet

Form & Purpose of VIEs

Trust, Partnership, joint ventures, or Corporation

Facilitate transactions

Transfer of Assets, leasing, hedging, R&D

cost financing structure

Characteristics of VIEs

Activities are limited

Equity investor role minor

less than 10%

Sponsoring firm’s involvement


Contribution of Capital

Risks and rewards


Consolidation of VIEs

Prior GAAP

ARB 51

Consolidated based on voting rights

Identifying if a VIE exists

Equity at risk not sufficient to permit the potential VIE
to finance its activities

Equity investors lack one of the following:

Direct or indirect ability to make decisions about entity
through voting or similar rights

An obligation to absorb the expected losses of the entity

Rights to receive the expected residual returns of the entity


Identification of the Primary Beneficiary of the VIE

Requires the primary beneficiary to consolidate

Characteristics include (mirror equity investors in a VIE):

The direct or indirect ability to make decisions about the VIEs

The obligation to absorb the entity’s expected losses

The right to receive the entity’s expected residual returns

Assessment of control

Entity that bears the majority of the risk


Disclosure Requirements

For Primary Beneficiaries

VIE’s nature, purpose, size and activities

Carrying amount and classification of consolidated assets

Lack of Recourse (if any)

Significant Variable Interest (Not Primary Beneficiary)

Nature of involvement with VIE

Nature, purpose and size of VIE

Exposure to losses

FAS 140

Transfers of financial assets

Mortgage loans, accounts receivable, credit card

Qualifying Special
Purpose Entities


Indicated that financial assets transferred to a QSPE
are typically derecognized by the transferor

Legal isolation concept

Permits derecognition of a portion or a
component of a financial asset

Relates to FIN 46(R) because QSPE’s are exempt
from consolidation requirements

Potential Primary Beneficiary

Potential VIEs

Guarantees Debt

ABC Data Center, LLC

Max Return 6%

95% Debt owed by
JP Morgan

Leases Data Center

5% Equity

& Debt


Shares of Intel

70% Equity

of 1%

30% Debt

XYZ Office Leasing

95% of Debt owed
by Goldman Sachs

Leases Office Space

5% Equity Non

FAS 167

Recently issued guidance for consolidations

Why FAS 167

Needed to expand disclosure requirements of FIN 46R
and address elimination of QSPEs

Broader Scope:

Includes Entities covered under FIN46R and QSPE’s

FAS 166 eliminated the concept of a QSPE

Amends derecognition guidance in FAS 140

Expands the Consolidation and Disclosure
Requirements associated with VIE’s


FIN 46(R)

QSPE’s are generally exempt

Primary Beneficiary

Quantitative Reasoning:

Based on Risks and Rewards


Shared Power:

Focus is on absorbing
expected losses or receiving
expected returns

FAS 167


Transferors, sponsors, and
investors in QSPE’s need to
consider consolidation and


Primary Beneficiary

Qualitative Reasoning:

Power and economics model

Power to direct activities

Obligation to absorb losses


Shared Power:

Power to direct activities

Do decisions require the
consent of both parties


FIN 46(R)

4. Reconsideration of
Primary Beneficiary:

Changes in contractual

Addition or disposal of

5. Reconsideration of VIE:

Interest holders reconsider
whether entity is a VIE if
certain events occur

FAS 167

4. Reconsideration of
Primary Beneficiary

Continuous reconsideration

Reconsideration of VIE:

An additional event requires


FIN 46(R)

6. Presentation Requirements:

Not required to present
consolidated VIE separately
on Balance Sheet

FAS 167

6. Presentation Requirements:

Must present separately on
the face of Balance Sheet the:

Assets used to settle

Liabilities for which creditors
do not have recourse against
primary beneficiary

FAS 167 Disclosure Requirements

Financial preparers must disclose method for
determining whether they are the primary beneficiary
of a VIE

Disclose significant judgments and assumptions made

Must disclose the details of any financial or other
support provided to a VIE

Disclose reasons for providing the support

Disclose all terms of arrangements and agreements with

If Shared Power between multiple parties

Disclose Significant Factors and Judgments made in

Research Tools

Orginal FASB pronouncements

Third party service providers

Lawyers, accountants, etc.

Online research tools

Other company disclosures

Other publications

AICPA, SEC, public accounting firms, state societies

Case Study

XYZ Oil is an established oil drilling company that wants to expand
its operations to offshore drilling platforms in the Gulf of
Mexico. XYZ determines that it can obtain the $350 million
needed to lease the platform by issuing debt at an annual
interest rate of 5%.

Instead of leasing the platform itself, XYZ decides to establish a
separate legal entity, Saltwater Drilling Co., to lease the drilling
platform. In doing so it can obtain the $350 million needed at an
annual rate of 4%.

An outside investor contributes $30 million for 100% of the
nonvoting shares in Saltwater Drilling Co. The remaining $320
million is raised through a debt offering, of which XYZ is the
guarantor. XYZ must also pay the investor for any losses incurred
if the asset is sold at the end of the lease term.


Would Saltwater Drilling Co. qualify as a VIE under FIN 46?
Under FAS 167?

Could Saltwater Drilling have obtained financing without XYZ
guaranteeing the debt?

Does the equity investor have the ability to make decisions about the
entities’ activities?

Does the equity investor bear the risk of loss?

Does the equity investor receive the expected residual returns?

Would XYZ qualify as a primary beneficiary?

Does XYZ have the power to direct the activities of Saltwater?

Does it bear the risk of loss or have the right to receive benefits?

Would it qualify as a primary beneficiary under FIN 46? FAS 167?


What documents would you need to examine to
determine that Saltwater is a VIE with XYZ as its
primary beneficiary?

Should Saltwater be consolidated into XYZ?

How should this be presented on the Financial


Would Saltwater Drilling Co. qualify as a VIE under FIN 46(R)? Under
FAS 167?

The answer is probably ‘Yes’ under both. The equity investor has an
insignificant (less than 10% ownership) and the entity probably
couldn’t finance the operations without XYZ’s support.

The investor also bears little risk as they are guaranteed their money
back if the asset is sold at a loss at the end of the lease.

Would XYZ Qualify as a Primary Beneficiary?

Probably ‘Yes’ under both FIN 46(R) and FAS 167

The investor doesn’t appear to bear much risk and since they own
voting stock their influence may not be significant.

XYZ appears to bear the risk of loss since they are guaranteeing the

Examination of the agreements would be needed to see who has the
power to direct activities and the obligation to absorb losses and
receive benefits.


So, should Saltwater Drilling Co. be
consolidated into XYZ?

If it is determined that Saltwater Drilling Co. is
both a VIE and XYZ Oil is its primary beneficiary
then it should be consolidated into the Financial

FAS 167,
certain assets
and liabilities
be required to be presented separately on the
face of the financial statements and additional
disclosures would be required

Audit Issues

Audit evidence

Company’s accounting memo

Entity documents

By laws

Security holder agreements

Legal Opinions

Consideration of an effective control environment

Timing of closing process for the SPE

Use of specialist/expert

International coordination

Language barriers and translation issues

Legal environment

Questions or Comments?