The US Financial Accounting Standards Board (FASB) has issued a proposal to improve the accounting for repurchase agreements (repos).

Currently in a classic repo transaction an entity transfers financial assets 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.

The FASB’s amendments are intended to simplify the accounting for these transactions by removing from the assessment of effective control the principle requiring the transferor to have the ability to repurchase or redeem the financial assets, as well as implementation guidance related to that principle.

FASB acting chairman Leslie Seidman said the proposed amendment seeks to address concerns raised during the global financial crisis about “a narrow aspect of existing guidance for determining whether a repo should be accounted for as a sale or as a secured borrowing.”

The FASB has requested comments be submitted by 15 January 2011.


Related links

Financial Accounting Standards Board

Financial Accounting Standards Board draft: Transfers and Servicing: Reconsideration of Effective Control for Repurchase Agreements