FASB IMPROVES FINANCIAL REPORTING OF REPURCHASE AGREEMENTS
Norwalk, CT, June 12, 2014—The
Financial Accounting Standards Board (FASB) today issued a new standard to
improve the financial reporting of repurchase agreements and other similar
transactions. Accounting Standards Update No. 2014-10, Transfers and
Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase
Financings, and Disclosures, changes the accounting for
repurchase-to-maturity transactions and repurchase financing arrangements. It
also requires enhanced disclosures about repurchase agreements and other similar
transactions.
The new guidance aligns the accounting for
repurchase-to-maturity transactions and repurchase agreements executed as a
repurchase financing with the accounting for other typical repurchase
agreements. Going forward, these transactions would all be accounted for as
secured borrowings. The guidance eliminates sale accounting for
repurchase-to-maturity transactions and supersedes the guidance under which a
transfer of a financial asset and a contemporaneous repurchase financing could
be accounted for on a combined basis as a forward agreement, which has resulted
in outcomes referred to as off-balance-sheet accounting. The new guidance also
brings Generally Accepted Accounting Principles (GAAP) into greater alignment
with International Financial Reporting Standards (IFRS) for
repurchase-to-maturity transactions.
“The new guidance addresses
investor concerns about the distinction in GAAP between repurchase agreements
that settle at the same time as the maturity of the transferred financial asset,
and those that settle any time before maturity,” stated FASB Chairman Russell G.
Golden. “Eliminating that distinction will result in financial reporting that
more appropriately reflects the transferor’s obligations and risks across
similar transactions.”
The Update requires a new disclosure for
transactions economically similar to repurchase agreements in which the
transferor retains substantially all of the exposure to the economic return on
the transferred financial assets throughout the term of the transaction. The
Update also requires expanded disclosures about the nature of collateral pledged
in repurchase agreements and similar transactions accounted for as secured
borrowings.
The accounting changes in this Update are effective for
public companies for the first interim or annual period beginning after December
15, 2014. In addition, for public companies, the disclosure for certain
transactions accounted for as a sale is effective for the first interim or
annual period beginning on or after December 15, 2014, and the disclosure for
transactions accounted for as secured borrowings is required to be presented for
annual periods beginning after December 15, 2014, and interim periods beginning
after March 15, 2015. For all other entities, all changes are effective for
annual periods beginning after December 15, 2014, and interim periods beginning
after December 15, 2015. Earlier application for a public company is prohibited,
but all other companies and organizations may elect to apply the requirements
for interim periods beginning after December 15, 2014.
The new guidance,
a FASB
in Focus document, and a video podcast that provides a high-level overview of the guidance
are available at http://www.fasb.org/.
About
the Financial Accounting Standards Board
Since 1973, the
Financial Accounting Standards Board has been the designated organization in the
private sector for establishing standards of financial accounting and reporting.
Those standards govern the preparation of financial reports and are officially
recognized as authoritative by the Securities and Exchange Commission and the
American Institute of Certified Public Accountants. Such standards are essential
to the efficient functioning of the economy because investors, creditors,
auditors, and others rely on credible, transparent, and comparable financial
information. For more information about the FASB, visit our website at http://www.fasb.org/.