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FASB proposes accounting for repurchase agreement changes

The US Financial Accounting Standards Board (FASB) has launched a consultation on its proposed improvements to accounting for repurchase agreement and other transfers with forward agreements to repurchase transferred assets.

The accounting update, Transfers and Servicing (Topic 860) -- Effective Control for Transfers with Forward Agreements to Repurchase Assets and Accounting for Repurchase Financings, clarifies the guidance for distinguishing these transactions as either sales or secured borrowings and improve disclosures about them.

The FASB said the proposed guidance eliminates the distinction between repurchase agreements that settle before the maturity of the transferred asset and those that settle at the same time as the transferred asset matures.

As a result, both types of transfers with forward agreements to repurchase the transferred assets or substantially-the-same assets at a fixed price would maintain the transferor's effective control during the term of the agreement and would be accounted for as secured borrowings.

One of the benefits of the proposed guidance for these types of arrangements it results in more IFRS comparable financial reporting. However, when the transferor does not maintain effective control over a transferred financial asset, the transaction would be required to be assessed under the remaining de-recognition conditions in US GAAP to establish whether it should be accounted for as a secured borrowing or sale with a forward repurchase agreement.

In addition, the proposed guidance would also clarify the characteristics of assets that may be considered "substantially the same" and would require new disclosures for certain transfers with forward agreements to repurchase the transferred assets. It would also eliminate current requirements to account for the initial transfer and related repurchase agreement on a combined basis and instead requiring separate accounting for the initial transfer and the repurchase financing.

Deadline to comment on the amendments is 29 March.

Related link
Financial Accounting Standards Board: proposed guidance

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