Off Balance Sheet Entities: A Preliminary Look at the Effects of Interpretation 46

On January 17, 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46 – Consolidation of Variable Interest Entities. Given companies' widespread use of VIEs (formerly SPEs) to finance their capital needs, the Interpretation will significantly affect the financial statements of numerous companies. Most significantly, the Interpretation will require primary beneficiaries to consolidate the assets and related debt of their VIEs rather than maintaining such balances and risk off of their balance sheets. This report summarizes the guidance provided in Interpretation 46 and identifies several firms that will need to consider whether certain off-balance-sheet entities may need to be consolidated. For most of the firms reviewed, limited disclosures did not permit us to quantify the effects of consolidation. When effective in 2003, new disclosures will make it easier to assess the financial statement effects of unconsolidated entities