International Finance and Accounting Handbook

cluding the methodology (whether quoted market prices, prices based on sales

of similar assets or liabilities, or prices based on valuation techniques) used in

determining their fair value. This disclosure should include whether the assets

are classified as trading or available for sale, how the yield on the asset is

recorded and a discussion of how impairment is assessed and measured.

• The key assumptions used in subsequently measuring the fair value of those in-
  terests (including, at a minimum, quantitative information about discount rates,
  expected prepayments including the expected weighted-average life of pre-
  payable financial assets, and anticipated credit losses, including expected static
  pool losses, if applicable)


• A sensitivity analysis or stress test showing the hypothetical effect on the fair
  value of those interests of two or more unfavorable variations from the expected
  levels for each key valuation assumption independently from any change in an-
  other key assumption, and a description of the objectives, methodology, and
  limitations of the sensitivity analysis or stress test.


• For the securitized assets and any other financial assets that the transferor man-
  ages together with them:
  
  
  • The total principal amount outstanding, the portion that has been derecog-
    nized, and the portion that continues to be recognized in each category re-
    ported in the statement of financial position, at the end of the period
  
  
  • Delinquencies at the end of the period
  
  
  • Credit losses, net of recoveries, during the period
  
  
  • Disclosure of average balances during the period is encouraged, but not re-
    quired
  
  
  
  

In the wake of the collapse of Enron Corporation, in early 2002 the SEC issued a
financial reporting release (FR-61), which provides specific considerations for Man-
agement Discussion and Analysis (MD&A) disclosures. The SEC release was in di-
rect response to a December 31, 2001, petition from the Big Five firms, which was
endorsed by the American Institute of Certified Public Accountants (AICPA).
FR-61 focuses on disclosing arrangements with unconsolidated entities that affect
liquidity or the availability of or requirements for capital resources, including:

• Relationships that are contractually limited to narrow activities that facilitate the
  registrant’s transfer of or access to assets


• To extent of reliance on off-balance-sheet arrangements where those entities
  provide financing, liquidity, or market or credit risk support for registrant, en-
  gage in leasing, hedging, or expose the registrant to liability that is not reflected
  on the face of the financial statements


• Contingencies that are reasonably likely to affect liquidity and their effects


• Business purpose and activities


• Economic substance


• Key terms and conditions of any commitments


• Initial and ongoing relationships with the registrant and its affiliates


• Registrant’s potential risk exposures resulting from its contractual or other com-
  mitments.

21.7 DISCLOSURES FOR SECURITIZATION TRANSACTIONS 21 • 21