In brief: FASB determines additional disclosure requirements for repurchase agreements (No. 2012-42)
In brief
The FASB decided at its September 5 meeting to propose additional disclosure requirements for repurchase agreements accounted for as secured borrowings and for repurchase agreements accounted for as sale transactions with a forward repurchase commitment. This In brief article provides an overview of the proposed disclosures.
What's new?
The FASB decided at its September 5 meeting to propose additional disclosure requirements for repurchase agreements accounted for as secured borrowings and for repurchase agreements accounted for as sale transactions with a forward repurchase commitment.
Background
Over the past several months, the FASB has reviewed the current guidance for repurchase agreements and similar transactions, including a reconsideration of the current guidance on assessing whether a transferor of a financial asset has retained effective control of that asset. The FASB also considered whether additional disclosures for repurchase agreements and similar transactions are needed.
To date, the FASB has decided that a repurchase agreement involving the sale and repurchase of identical financial assets or similar, but not identical, financial assets meeting six specified criteria would be accounted for as a secured borrowing. Such transactions would not be analyzed under the existing derecognition criteria to qualify for sale accounting. Transactions not considered a repurchase agreement as defined would be analyzed under existing derecognition criteria.
What are the key decisions?
The FASB decided to require the following additional disclosures of repurchase agreements and similar transactions:
- For repurchase agreements and similar transactions that are accounted for as secured borrowings, entities will disclose a disaggregation of the carrying value of the borrowing based on the type of collateral pledged.
- For repurchase agreements and similar transactions that qualify for sale accounting because they are not a repurchase of an identical asset or the "substantially the same" criteria is not met, quantification of these transactions at each reporting period will be required. To the extent that the amount of such agreements has changed significantly since the previous balance sheet date, an entity will be required to disclose the reason(s) for the change.
The FASB reversed a tentative decision from August and decided not to require entities to disclose the basis for their conclusions about whether transactions are accounted for as secured borrowings or sales.
Is convergence achieved?
While this is a FASB-only project, it could result in greater consistency in the accounting for repurchase transactions under U.S. GAAP and IFRS, even though the underlying approach differs. IFRS requires a “risk and rewards” approach that generally results in treating repurchase agreements as secured borrowings.
Who's affected?
This project is likely to affect some companies that engage in repurchase agreements or similar transactions. While the accounting treatment may not change in many cases, additional disclosures may be required.
What's the effective date?
No effective date has been proposed yet. The effective date will likely depend on the extent of the proposed changes and the amount of time companies will need to implement those changes.
What's next?
An exposure draft is expected during the fourth quarter of 2012.
Questions?
PwC clients who have questions about this In brief should contact their engagement partner. Engagement teams that have questions should contact the Financial Instruments team in the National Professional Services Group (1-973-236-7803).
Authored by:
Chip Currie
Partner
Phone: 1-973-236-5331
Email: frederick.currie@us.pwc.com
Mary Perrotta
Director
Phone: 1-973-236-7575
Email: mary.b.perrotta@us.pwc.com
Kristin Derington-Ruiz
Senior Manager
Phone: 1-973-236-7093
Email: kristin.derington-ruiz@us.pwc.com
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