FASB Proposes Revisions to Transfers and Servicing (Topic 860)


By John Popies

On January 15, the Financial Accounting Standards Board (FASB) issued a proposed accounting standards update (ASU) that clarifies Effective Control for Transfers with Forward Agreements to Repurchase Assets and Accounting for Repurchase Financings.

The main objective in developing this proposal update is to: (a) clearly identify repurchase agreements, securities lending transactions, and other transactions that involve a transfer of a financial asset and an agreement that both entitles and obligates the transferor to repurchase or redeem the transferred asset that should be accounted for as financing transactions and (b) improve the accounting and disclosures for those transactions.

The following characteristics are indication of a secured borrowing transaction:
• The financial asset to be repurchased at settlement of the agreement is identical to or substantially the same as the financial asset transferred at inception or, when settlement of the forward agreement to repurchase or redeem the transferred assets is at the maturity of the transferred assets, the agreement is settled through an exchange of cash.
• The repurchase price is fixed or readily determinable.
• The agreement to repurchase the transferred financial asset is entered into contemporaneously with, or in contemplation of, the initial transfer.

If the agreement does not match any of the characteristics above, the transferor’s effective control over the transferred asset would not be maintained, and the transferor would be required to assess the transfer under the remaining derecognition conditions as set forth in paragraph 860-10-40-5 of the current guidance.

The proposed amendment will impact both public and nonpublic entities. Although an effective date has not been determined, the FASB has proposed that some agreements will require a cumulative-effect adjustment to retained earnings and some will be accounted for prospectively.

© 2013 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2019 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.