the transferor is also the originator of the financial assets). Paragraph 31 of Imple-
mentation Guidelines to Accounting Standards for Financial Instruments issued by
Japanese Institute of Certified Public Accountants (JICPA Guidelines) notes that
“legally secured” in the first point above should be assessed considering:
- Whether the transferor can revoke the transfer based on an agreement or a cir-
cumstance - Whether the trustee can nullify the transfer of the financial asset when the trans-
feror is in bankruptcy procedures under the Japanese Bankruptcy Law, the
Japanese Corporate Reorganization Law, the Japanese Composition Law, and
other similar laws
The transferee’s right is deemed to be legally secured under the current legal en-
vironment, if the transfer of the financial assets can be perfected against all third par-
ties except for the issuer of the assets.
In addition to the legal isolation difference from U.S. GAAP, Japanese GAAP does
not yet incorporate all of the QSPE rules from FAS 140 such as the permissible ac-
tivities of QSPE.
(c) Canadian GAAP. Accounting Guideline 12, “Transfers of Receivables” (AcG-
12), provides the accounting and reporting standards for sales, securitizations and
servicing of receivables and other financial assets under Canadian GAAP. AcG-12
adopts substantially the same approach as that set out in FAS 140, although the scope
of AcG-12 is narrower than that of FAS 140. The Canadian Institute of Chartered Ac-
countants (CICA) attempted to conform AcG-12 as closely as possible to FAS 140
but several GAAP differences continue to remain because of pre-existing differences
in other GAAP. The primary differences between AcG-12 and FAS 140 are:
- While both AcG-12 and FAS 140 explicitly exempt a transferor from consoli-
dating a QSPE to which the transferor has transferred receivables, if the special
purpose entity in not qualifying, the transferor must look to other applicable
guidance to determine whether it should be consolidated. Since the consolida-
tion rules are different in Canada and the United States, in some circumstances
entities will be compelled to consolidate nonqualifying SPEs for U.S. GAAP
purposes but not for Canadian GAAP and vice versa. - U.S. GAAP provides specific guidance for accounting for retained interests
(FAS 115 and EITF 99-20), whereas AcG-12 states that an entity should analyze
the substance of a retained interest and account for that interest as a loan or an
investment in accordance with Section 3025, Impaired Loans, and Section 3050,
Long-Term Investments and disclose its accounting policies. Accordingly, under
Canadian GAAP retained interests are generally recorded at amortized cost. - EITF 99-20 requires the transferor to recognize the excess of all cash flows at-
tributable to the retained interest at the transaction date over the initial invest-
ment as interest income over the life of the retained interest using the effective
yield method. Canadian companies have tended to follow a similar model for
recognition of income from retained interests for Canadian GAAP. However,
other patterns of income recognition may also be accepted in practice.
21.9 INTERNATIONAL SECURITIZATION 21 • 25