During December 2007, the staff of the SEC's Division of Corporation Finance sent letters to selected registrants that previously had disclosed involvement with certain types of off-balance sheet entities, namely non-consolidated conduits, structured investment vehicles and collateralized debt obligations. In the letters, the staff highlighted for consideration disclosure items relating to off-balance sheet entities. In particular, the staff focused on three disclosure topics:
- Disclosure requirements under Item 303(a)(4) of Regulation S-K, which sets forth MD&A requirements concerning off-balance sheet arrangements;
- Disclosures where the registrant has identified consolidation and variable interest entities as a critical accounting policy; and
- The requirement under Item 303 of Regulation S-K to discuss any known trends or uncertainties that the registrant reasonably expects to have a material favorable or unfavorable impact on income from operations, liquidity and capital resources.
The SEC subsequently made an illustrative letter, reproduced below, publicly available. As calendar-year registrants begin preparation of their 2007 MD&A, they should keep the staff's guidance in mind. Although the letter specifically mentions only the three types of off-balance sheet obligations listed above, especially in the current market environment, all registrants with material off-balance sheet obligations should evaluate their proposed disclosure against the staff's guidance.