Securities Covered by EITF 99-20

BY THOMAS G. REES AND KENNETH F. FICK

Accountants often struggle when attempting to determine whether an investment is covered by Emerging Issues Task Force (EITF) Issue no. 99-20, because its scope provisions contain a “double negative” that may make interpretation difficult.

           

In summary, the scope of EITF 99-20, Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets , includes beneficial interests in securitized financial assets that:

  1. Are not of high credit quality, and
  2. Can contractually be prepaid or otherwise settled in such a way that the holder would not recover substantially all of their recorded investment.           

High credit quality securities include securities guaranteed by the U.S. government, its agencies, or other creditworthy guarantors or which are sufficiently collateralized to ensure that the possibility of credit loss is remote. The SEC staff has generally interpreted securities rated AAA or AA to be of “high credit quality.”

           

The scope of EITF 99-20 includes asset-backed securities (ABS), collateralized debt obligations (CDOs), collateralized mortgage-backed securities (CMBS) and mortgage-backed securities (MBS) that are not of high credit quality. In addition, it includes interest-only strips (I/Os), and principal-only strips (P/Os) that are not guaranteed by a government-sponsored entity (GSE) or a government agency.

SPONSORED REPORT

Revenue recognition: A complex effort

Implementing the new standard requires careful judgment. Learn how to make significant accounting judgments and document them and collaborate with peers for consistent application.

VIDEO

How to Excel pivot a general ledger

The general ledger is a vast historical data archive of your company's financial activities, including revenue, expenses, adjustments, and account balances. J. Carlton Collins, CPA, shows how to prepare data for, and mine data with, PivotTables.

QUIZ

News quiz: Taking an economic snapshot and looking to the future

Recent news included IRS actions that affect individuals and partnerships and a possibly influential move by a Big Four accounting firm.Take this short quiz to see how much you know about the news.