5.1 General
ASC 860-30
05-1 This Subtopic provides
guidance on transactions that are accounted for as secured
borrowings with a transfer of collateral.
05-2 A debtor (obligor) may grant a
security interest in certain assets to a lender (the secured
party) to serve as collateral for its obligation under a
borrowing, with or without recourse to other assets of the
obligor. An obligor under other kinds of current or
potential obligations, for example, interest rate swaps,
also may grant a security interest in certain assets to a
secured party.
05-3 If collateral is transferred
to the secured party, the custodial arrangement is commonly
referred to as a pledge. Secured parties sometimes are
permitted to sell or repledge (or otherwise transfer)
collateral held under a pledge. The same relationships
occur, under different names, in transfers documented as
sales that are accounted for as secured borrowings (see
paragraph 860-30-25-2).
Overall Guidance
15-1 This Subtopic follows the same
Scope and Scope Exceptions as outlined in the Overall
Subtopic, see Section 860-10-15, with specific transaction
qualifications noted below.
Pending Content (Transition Guidance: ASC
105-10-65-7)
15-1 This Subtopic follows the same
Scope and Scope Exceptions as outlined in the
Overall Subtopic, see Section 860-10-15, with
specific transaction qualifications noted below.
Paragraph 860-30-50-7(d) applies to public
business entities only.
Transactions
15-2 The collateral accounting
provisions of paragraphs 860-30-25-5, 860-30-30-1, and
860-30-45-1 apply to all transfers of financial assets
pledged as collateral in a transaction accounted for as a
secured borrowing.
15-3 The guidance in this Subtopic
applies to many types of transactions in which cash is
obtained in exchange for financial assets with an obligation
for an opposite exchange later. For example, that guidance
may apply to any of the following types of transactions with
those characteristics:
-
Repurchase agreements
-
Dollar rolls
-
Securities lending transactions.
A transfer of financial assets that does not meet the conditions for
sale accounting in ASC 860-10 is a secured borrowing. ASC 860-30 addresses the
accounting and disclosure requirements for secured borrowings and pledges of
collateral and applies to all transfers of financial assets within the scope of ASC
860-10 that do not meet the sale accounting conditions in ASC 860-10-40-5. The scope
of ASC 860-30 is the same as that discussed in Chapter 2. Thus, for any transfer within the
scope of ASC 860-10, if sale accounting is not achieved, the transfer must be
accounted for as a secured borrowing (i.e., the only potential outcomes in a
transfer within the scope of ASC 860-10 are derecognition or collateralized
borrowing).
In a secured borrowing, a transferor is considered to have borrowed
cash (or other consideration) in exchange for a pledge of collateral (i.e., a grant
of a security interest in the transferred financial assets).1 Therefore, the transferor does not derecognize the transferred financial
assets. Generally, the accounting for a secured borrowing is symmetrical between the
transferor and transferee, and the transferred financial assets are not recognized
as assets by the transferee.2 However, any cash exchanged between the parties is recognized by the recipient
(along with a corresponding payable) and is derecognized by the payor (along with a
corresponding receivable). A transferee may recognize the transferred financial
assets pledged as collateral upon a default by the transferor. In addition, if a
transferee “re-transfers” financial assets received as collateral in a transaction
that represents a sale (e.g., a short sale), it must recognize an obligation to
return those assets to the transferor.
Footnotes
1
In this chapter, the transferred financial assets represent
noncash collateral in a secured borrowing.
2
See Section 5.3.3.3. In a securities lending arrangement in
which securities are loaned for noncash collateral (e.g., a
securities-for-securities transaction) and the securities lender (i.e., the
transferor) has the right to transfer the collateral received (i.e., the
securities lender can sell or repledge the collateral obtained), both the
securities lender and the securities borrower (i.e., the transferee)
recognize the collateral (i.e., the securities lender recognizes the noncash
collateral received from the securities borrower as proceeds for a secured
borrowing).