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June 25, 2002

Ms. Suzanne Bielstein
Director of Major Projects & Technical Activities
Financial Accounting Standards Board
401 Merritt 7
Post Office Box 5116
Norwalk, Connecticut 06856-5116

Re: File Reference No. 1124-001 Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others

Dear Ms. Suzanne Bielstein:

The Financial Accounting Policy Committee (FAPC) of the Association for Investment Management and Research (AIMR)¹ is pleased to comment on the Financial Accounting Standards Board's (FASB) Exposure Draft, Proposed Interpretation - Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. The FAPC is a standing committee of AIMR charged with maintaining liaison with standard setters who develop financial accounting standards and regulate financial statement disclosures and responding to new regulatory initiatives. The FAPC also maintains contact with professional, academic, and other organizations interested in financial reporting.

General Comments

The FAPC strongly supports the recognition and measurement of guarantees and disclosure of related information that will aid investors in their investment decisions. This proposed interpretation does require additional recognition, measurement, and disclosure by guarantors in their financial statements; however, it does not go far enough in ensuring continuing comprehensive recognition of the fair value of guarantees or warranties and excludes other similar transactions from identical recognition and disclosure. The absence of guidance with respect to subsequent measurement will exacerbate the problems created by lack of guidance on the debit corresponding to the guarantee obligation recognized. Finally, we urge the Board to provide measurement guidance and note that the measurement principles described in FASB Concepts Statement No. 7 provide adequate guidance.

Scope
The committee supports the important tenet set forth in the Board's Mission Statement that similar transactions should be accounted for similarly. Accordingly, the committee believes that product warranties should be included in the Interpretation's scope and recognized initially and subsequently at the fair value of the estimated cost to be incurred to satisfy claims under the warranty.

The committee believes that the scope should also include items similar to warranties, such as vendor rebates and contingent rent. We believe that a fair valuation of these amounts would provide better representative value. At the very least disclosure of the valuation methodology should be provided.

Paragraph 6 of the Interpretation excludes a lessee's guarantee if it is accounted for as a capital lease under FASB Statement No. 13, Accounting for Leases. The FAPC believes that the lessee's guarantee should be recognized and measured, and that disclosures should be provided. We also strongly believe that these requirements should not be limited to those leases that qualify as a capital lease.

Guarantor's Recognized Liability
This interpretation addresses the valuation at inception of the guarantee but does not address the subsequent measurement of the guarantor's recognized liability for either the non-contingent element of the guarantee or the contingent element of the guarantee. FASB Statement No. 5 provides guidance on the measurement of a loss when that loss is probable. We believe that subsequent measurement not captured by FAS 5 and not currently included in the proposed Interpretation needs to be addressed.

Effective Date of Implementation
We support the Board in seeking to implement this interpretation at the earliest possible date.

Concluding Remarks

The Financial Accounting Policy Committee appreciates the opportunity to express its views on the Board's proposed interpretation: Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. If the Board or staff have questions or seek amplification of our views, please contact Nazir Rahemtulla at 1-434-951-5337 or at nazir.rahemtulla@cfainstitute.org. We would be pleased to answer any questions or provide additional information you might request.

Respectfully yours,

Ashwinpaul C. Sondhi, Ph.D.
Chair,
Financial Accounting Policy Committee

Nazir S. Rahemtulla, CFA
Associate, Advocacy AIMR

¹ With headquarters in Charlottesville, VA, and regional offices in Hong Kong and London, the Association for Investment Management and Research® is a non-profit professional organization of 57,000 financial analysts, portfolio managers, and other investment professionals in 107 countries of which 44,800 are holders of the Chartered Financial Analyst® (CFA®) designation. AIMR's membership also includes 106 affiliated societies and chapters in 29 countries. AIMR is internationally renowned for its rigorous CFA curriculum and examination program, which has more than 100,000 candidates from 143 nations enrolled for the June 2002 exam.