A VIE (variable interest entity) is an unique legal entity to be used for a specific purpose based on some set of financing or operating needs, such as leasing arrangements or project development activities. Structured financing is used to place assets and corresponding liabilities into this separate legal structure such as a trust, partnership, joint venture, or a corporation. The analyst is concerned that the potential changes in accounting standards will force VIEs to be consolidated in the financial statements rather than off-balance-sheet and unreported.

Phase 1. The Purpose for the Analysis.

To estimate the impact of potential changes in accounting standards.

Phase 2. Collect Input Data.

The information source is the current 2008 10-Q filings and the 2007 10-K filing.

Phase 3 and 4. Process, Analyze and Interpret Data.

The reported balance sheet is revised after securitization adjustments. The impact is significant. There are more assets and liabilities on the managed basis and the financial leverage ratio is higher. The ratio of liabilities/total assets is also higher on the managed basis than that on the as-reported basis.

Phase 5. Conclusions and Recommendations.

The company's true leverage is hidden under the as-reported basis. The expected changes by standard setters will force the company to present a balance sheet that shows higher leverage. The mutual fund should reduce its holdings in the company.

Phase 6. Follow-up.