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Abstract
SFAS 166, Accounting for Transfers of Financial Assets - an amendment of SFAS 140, changes the requirements for derecognizing financial assets and changes the initial measurement by the transferor of interests related to transferred financial assets. SFAS 166 removes the concept of a qualifying special-purpose entity (SPE) from SFAS 140 and also removes the exception from applying FASB Interpretation No. 46 to qualifying SPEs. In order to account for a transfer as a sale, the following conditions must be met: 1. The transferred portion of the financial assets and any portion retained by the transferor must be a participating interest. 2. The transferred portion must meet the conditions for surrender of control. If the above conditions are not met, a sale can be recognized only if an entire financial asset or group of financial assets that meet the derecognition criteria in SFAS 140 is transferred. Finally, SFAS 166 increases the use of fair value measurements because it requires a transferor's beneficial interests to be initially recognized at fair value when the transfer is accounted for as a sale.