The US Financial Accounting Standards Board
(FASB) has updated and revised the rules for repurchase agreements
or Repos, indentified as one of the reasons which lead to the
collapse of Lehman Brothers.
The updated Transfers and Servicing (Topic
860): Reconsideration of Effective Control for Repurchase
Agreements standard aims to improve the accounting for repo
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.
FASB chairman Leslie Seidman said the FASB
revisited its standards on transfers and servicing to respond to
concerns from financial statement users who felt the criteria for
determining effective control for such transactions should be
improved.
“The new guidance improves transparency by
eliminating consideration of the transferor’s ability to fulfill
its contractual rights and obligations from the criteria in
determining effective control,” Seidman added.
In December the New York Attorney General
filed a lawsuit against Lehman Brothers auditors Ernst & Young,
with allegations of misconduct involving the use of Repo 105.
The Repo 105 misconduct was first exposed in
early 2010 when US court appointed investigator alleged that Lehman
Brothers used the Repo 105 accounting trick to allow the bank to
temporarily move $36bn off its balance sheet in August 2007 and
$50billion in the second quarter of 2008.
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