SEC to Set Limits on Eligible Hedge Fund Investors
In an open meeting on December 13, 2006, the Securities and Exchange Commission ("SEC") voted to propose a rule that would raise the bar for "accredited investors." Currently, accredited investors (those eligible to invest in hedge funds), must have a net worth of $1 million (including the value of the investor's home) or have an income greater than $200,000 in two consecutive years ($300,000 for a couple's combined income). In its rule, the SEC is proposing accredited investors must also have $2.5 million in investable assets, thereby conceivably reducing the number of eligible hedge fund investors. The Steering Committee of the AMG will review this proposal when it is published by the SEC.
New Proposal for Section 404 of Sarbanes Oxley
On December 14, 2006, the Public Company Accounting Oversight Board (PCAOB) voted to propose a new auditing standard for the audits of registrants' internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act. The SEC and PCAOB worked together on the newly proposed interpretive guidance that is designed to repeal Auditing Standard No. 2 and replace it with a new standard that is more scalable for smaller companies.
Click here to read SEC press release on PCAOB's proposed new auditing standard
Click here to read SEC proposed rule and interpretive guidance on Section 404 of Sarbanes Oxley
FASB to Proceed with FAS 155 Scope Exception
As reported by the American Securitization Forum ("ASF") this week, the Financial Accounting Standards Board (FASB) agreed to move forward toward the issuance of final guidance relating to the application of FAS 133 to securitized interests in prepayable financial assets. FASB plans to issue final guidance on this topic in January, in the form of a scope exception for certain prepayable securitization instruments from the application of Paragraph 13(b) of FAS 133. Absent the scope exception, bifurcation and separate mark-to-market accounting for embedded prepayment derivatives contained within those securitized instruments (or for the securitized instrument as a whole) would be required, pursuant to FAS 155.
Importantly, the FASB approved two amendments to the scope exemption. First, FASB agreed to remove criterion from the scope exception, which would have required underlying securitized financial assets to be evaluated to ensure that they do not have embedded derivatives that require bifurcation. Second, FASB agreed to amend criterion in the proposed scope exception, which would otherwise have required that securitized interests do not contain embedded derivatives for which bifurcation would be required, other than an embedded derivative that results solely from embedded call options in the underlying financial assets. As amended, this criterion will not apply to instruments issued prior to June 30, 2007 (date subject to final approval), and where the other embedded derivative requiring bifurcation has a fair value of zero (or close to zero) as of the effective date of FAS 155.
FASB's decisions are consistent with input and recommendations provided by ASF and other parties during the comment process. For questions or for additional information on this matter, please contact George Miller, Executive Director of the ASF at 646.637.9216.