Securitizations

Avoiding unintended financial reporting issues when funding working capital and liquidity needs without further leveraging the balance sheet


Accounted for funding structures as secured borrowings

About securitizations

Companies often transform liquid assets into securities that can be sold or transferred to fund working capital and liquidity needs. Examples include asset factoring arrangements and transfers of assets (often trade accounts receivables) to bank-sponsored commercial paper conduits. There are sometimes referred to as securitizations.

Accounting guidance governing such transactions has significantly altered the way trade receivable transfers are analyzed. Many structures used to effect such transfers likely will be accounted for as secured borrowings.

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What impacts should companies consider?

The accounting governing securitization structures can be difficult to interpret and apply and may inadvertently limit future financing. For example:

  • Certain commonly used structures may need to be accounted for as a borrowing as opposed to a sale.
  • Collections of any deferred purchase price in a securitization transfer may need to be recorded as a financing cash flow as opposed to an operating cash flow.

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What should companies do?

A company considering securitization transfers should:

  • Determine whether your business needs to maintain operational control over the assets transferred and evaluate whether that operational control will preclude sale treatment under the accounting guidance.
  • Understand the cash flow classification impacts of the transaction and whether operating cash flow treatment of future collection may be acceptable.

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How PwC can help

PwC is a trusted resource for advising companies on new structures that continue to evolve in the marketplace and assessing these transactions under the new guidance. Our knowledge of accounting and financial reporting issues puts you in a stronger position to develop sounder securitization practices. This support can help you develop strategies to withstand regulatory scrutiny, anticipate potential areas of SEC focus in future filings and meet constantly evolving expectations for clear and transparent financial reporting.

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Contact us

Paul Sheward
Partner, Deals, U.S. Accounting Advisory Services Leader
Tel: +1 (312) 298 2232
Email