On the Horizon - January 22, 2013

Author:Ms Grant Thornton's Audit Practice Group
Profession:Grant Thornton LLP


All decisions reached at Board meetings are tentative and may be changed at future meetings. Decisions are included in an Exposure Draft only after a formal written ballot. Decisions reflected in Exposure Drafts are often changed in redeliberations by the Board based on information received in comment letters, at public roundtable discussions, and from other sources. Board decisions become final after a formal written ballot to issue a final Accounting Standards Update.

Board proposes improvements to accounting for repurchase agreements

The FASB recently issued proposed Accounting Standards Update (ASU), Effective Control for Transfers with Forward Agreements to Repurchase Assets and Accounting for Repurchase Financings, to clarify the difference between sales and secured borrowings of financial assets in a repurchase agreement. The proposed changes are expected to better reflect the transferor's obligations and risks under these transactions.

The proposed guidance would remove the distinction between repurchase agreements that settle before the transferred asset matures and those that settle on the same date the transferred asset matures (repurchase-to-maturity agreements). For both types of transactions, effective control would be maintained by the transferor when all of the following conditions are met:

The repurchased assets are identical or substantially the same assets as the financial assets initially transferred or when the agreement is settled in cash upon maturity of the transferred assets. The repurchase price is fixed or readily determinable. The agreement to repurchase the transferred financial asset is entered into simultaneously with, or in contemplation of, the initial transfer. If the transferor does not maintain effective control because one or more of the above criteria are not met, the transferor would apply the conditions in FASB Accounting Standards Codification® (Codification or ASC) 860-10-40-5, Transfers and Servicing, to determine whether the transfer would be accounted for as a secured borrowing or as a sale and a forward purchase agreement.

During the term of both types of transactions, the transferor typically retains exposure to the credit risk of the transferred assets and to certain benefits of the transferred assets. Transactions in which the transferor of the financial assets maintains effective control over the transferred assets are accounted for as secured borrowings.

The proposals would also clarify the characteristics of assets that qualify as "substantially the same" and would add new disclosures for transfers of financial assets with forward agreements to repurchase transferred assets.

Finally, the proposed guidance would change the current guidance on accounting for the transfer of a financial asset and the simultaneous refinancing of the transferred asset between the same counterparties (repurchase financings). Entities would be required to account for the initial transfer and the repurchase financing as two separate transactions rather than on a combined basis under current U.S. GAAP.

The FASB has not proposed an effective date for this guidance. For transfers with forward purchase agreements that settle when the financial asset matures and for repurchase financings that involve such agreements, entities would apply the proposed amendments through a cumulative-effect adjustment as of the beginning of the first reporting period in which the guidance is effective. For all other transactions, entities would apply the proposed amendments prospectively to transactions entered into or modified after the effective date.

The Board has published FASB In Focus, " Proposed Accounting Standards Update - Transfers and Servicing (Topic 860) - Effective Control for Transfers with Forward Agreements to Repurchase Assets and Accounting for Repurchase Financings," to provide additional information regarding this proposal.

The comment period ends March 29.

FAF completes post-implementation review of segment guidance

The Financial Accounting Foundation (FAF) recently completed its post-implementation review of FASB Statement 131, Disclosures about Segments of an Enterprise and Related Information, which is codified in ASC 280, Segment Reporting. An independent team, overseen by the FAF Board of Trustees, obtained feedback from stakeholders, including financial statement users and preparers, accounting practitioners, and academics, on the application, usefulness, and effectiveness of Statement 131.

The review team concluded that the disclosure requirements in Statement 131 have generally improved the way public companies report financial...

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