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Board Considers Delaying Tougher Accounting Rules

Regulations: Companies may have more time before they must add some off-balance-sheet financing to the books.

April 04, 2002|From Bloomberg News

Accounting rule makers may delay tougher new guidelines for the financing vehicles used by Enron Corp. to hide debts.

The delay may allow many companies more time before adding costly liabilities to their books.

The Financial Accounting Standards Board said Wednesday that it may phase in the change for certain existing entities used to finance property purchases. For new entities, however, the rules probably will take effect by August.

FASB Chairman Edmund Jenkins previously said the rules would take effect for all companies by year's end.

"We need to give a little more thought to the transition, whether there should be a delayed effective date," said Ray Simpson, FASB project manager.

The biggest effect of the proposed changes would be on thousands of companies that financed property using so-called synthetic leases. Those firms would have to begin including that debt on their balance sheets. The change could add an estimated $100 billion in debt to corporate balance sheets, analysts said.

"This will be a big change in practice and it's going to be very controversial," said Dennis Beresford, an accounting professor at the University of Georgia and a former FASB chairman. "I suspect there will be plenty of people who say: 'We don't mind doing this going forward but we think it's unfair that we have to change everything now.' "

The FASB staff is preparing a draft of the new rules that probably will be finished by the end of April. Once it is published, there will be a public comment period. Then a final version will be prepared and approved by the board.

In a synthetic lease arrangement, a financial institution sets up a special-purpose entity that borrows money to finance new construction or to purchase an existing building for a company.

The entity holds the title and leases it to the company for the term of the lease, typically three to seven years, with the possibility for renewal. During the lease's term, the company deducts interest payments and depreciation of the property's value from its taxes. For accounting purposes, however, it treats the arrangement as a standard operating lease and keeps the property and the debt off its balance sheet.

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