SEC: off-balance sheet rule changes won’t create shocks

Changes to a contentious accounting rule could force trillions of dollars of
off-balance-sheet transactions back onto companies’ books, but it will be done
in a way to avoid unnecessary shocks in the market.

The assurance to companies came from Securities and Exchange Commission
chairman Christopher Cox.

‘We want to make sure that the discussion of this and the implementation of
this is done in such a fashion that the market can absorb it and it does not
create any unnecessary shocks,’ Cox told a panel at the US Congress.

The Financial Accounting Standards Board is working to eliminate off-balance
sheet special purpose entities which came under fire during the credit crunch,
since these were forced back onto the companies’ books when their trading
floors thinned.

The change would mean that current and new entities will have to be brought
onto the balance sheet.

Mortgage companies have raised concern about the changes but Cox said the
changes were not being rushed.

‘It’s wrong to say that this is being fast tracked. The likely scenario is
that there will be a period for public comment, consideration. In terms of
effective date that they are considering in that proposal, we are talking years
into the future,’ said Cox.

FASB plans to announce the revised rules next month.

Further reading:

Accountants and the crisis: the outlook – ready for the

FASB set to change off balance sheet accounting

US raises $5,000bn balance sheet fears

Related reading

Fiona Westwood of Smith and Williamson.