46) that requires more consolidation of special purpose entities – entities whose activities are predetermined by law, charter, or contract and whose voting equity holders do not have a controlling financial interest regardless of the percentage owned. The sponsor creates such an entity for a single specified purpose, for instance, to facilitate securitisation, leasing, hedging, research and development, reinsurance, or other transactions or arrangements. FASB's new rules call these entities Variable Interest Entities (VIE) rather than Special Purpose Entities (SPE). Under the old US rules, companies did not consolidate VIEs if an outside investor put up all the equity, so long as that equity amounted to at least 3 percent of the total assets. Under Interpretation 46, the threshold is 10 percent, and even then the auditor must assess whether any level of equity capital is enough to support the VIE, given the nature of its assets, or whether a guarantee from the sponsor is necessary for it to borrow the money it needs. If the guarantee is needed, then the sponsor must consolidate the VIE. The Interpretation also expands the disclosure requirements for unconsolidated VIEs, including disclosure of potential maximum loss that the VIE could cause. The IASB has a project on its agenda on Consolidation, Including SPEs. Currently, SIC 12 provides guidance. Click for FASB Press Release (PDF 15k).

The new rules, which apply to foreign as well as domestic issuers, address:

• Conditions for use of non-GAAP financial information.
• Form 8-K amendments.
• Disclosure requirements regarding audit committee financial experts.
• Disclosure of adoption of a code of ethics.

(PDF 69k).

The amended directives are scheduled for final vote by the Council of Ministers in March. Click for EC Press Release.

Click here to Download EFRAG's draft comment letter ED 3, Business Combinations, and Proposed Amendments to IAS 36 and IAS 38. EFRAG needs comments by 7 March 2003.

Both the Federation of European Accountants (FEE) and the International Federation of Accountants (IFAC) (PDF 80k) have responded to the SEC's auditor independence proposals.

We have updated the data on our Statistics Page about cross-border listings on the NY Stock Exchange (474 non-US companies from 51 countries, roughly one-third of total market cap); NASDAQ (379 non-US companies from 40 countries); and London Stock Exchange (470 non-UK companies from 61 countries, roughly two-thirds of total market cap).

Click for EC Press Release (PDF 40k). IPSAS are developed by the Public Sector Committee of IFAC and are based on International Financial Reporting Standards. The OECD and NATO have also adopted IPSAS for their financial reports.

The German Accounting Standards Board (DRSC) will hold a public discussion of IASB ED 2, Share-Based Payment, in Berlin on 10 February 2003. Details on the DRSC Website.

Both the translation and endorsement processes are now under way. A recent Commission (PDF 18k) indicates that their goal for completing both steps is Spring 2003.

In the area of accounting, the Commission urged more timely response by accounting standard-setters and encouraged convergence between US and global accounting standards:

Global capital markets could be made more efficient if accounting standards were harmonized on a world-wide basis. We strongly support both the emphasis on convergence between U.S. and the global standards and significant improvement in both bodies of standards. We applaud the efforts of the leadership of FASB and the IASB toward finding common ground on higher quality standards so that the infrastructure of our global economy can advance towards an integrated international capital market. In this regard, we further recommend that the SEC, the new Public Corporation Accounting Oversight Board, and the Financial Accounting Foundation find a way to finance the American share of the International Accounting Standards Board Foundation through the issuer assessments established under the Act. The international financial community is encouraged also to adopt such a funding mechanism.

Click to Download the Report (PDF 582k).