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03 November 2010

FASB exposure draft to improve the accounting for repurchase agreements


FASB issued an ED to solicit input from stakeholders on its proposal to improve the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. The comments are requested by January 15, 2011.

“During the global economic crisis, concerns were expressed about a narrow aspect of existing guidance for determining whether a repo should be accounted for as a sale or as a secured borrowing,” notes FASB Acting Chairman Leslie F. Seidman. “The proposals contained in this Exposure Draft seek to address these concerns by simplifying this guidance.”

In a typical repo transaction, an entity transfers financial assets to a counterparty in exchange for cash with an agreement for the counterparty to return the same or equivalent financial assets for a fixed price in the future. Topic 860, Transfers and Servicing, prescribes when an entity may or may not recognize a sale upon the transfer of financial assets subject to repo agreements. That determination is based, in part, on whether the entity has maintained effective control over the transferred financial assets.

The amendments in this proposed Update are intended to simplify the accounting for these transactions by removing from the assessment of effective control the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets, as well as implementation guidance related to that criterion.
 
The IASB’s derecognition guidance is provided under IAS 39, Financial Instruments: Recognition and Measurement. The consideration of a transferor’s ability to repurchase or redeem financial assets transferred on substantially agreed terms, even in the event of default by the transferee, is not required under IFRS. This proposal improves convergence by eliminating from U.S. GAAP the need to consider this criterion.

Press release


© FASB

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