Gaap Repurchase Agreements

On 15 January 2013, the FASB adopted a proposal on ASU1, which would modify U.S. GAPAs by requiring repurchase contracts (“rest”2) that take into account the criteria of secured credit accounting as secured obligations and not as forward sales, including benchmarks, which are settled at maturity of the transferred assets.3 The proposed ASU would eliminate the proposed orientation towards the current orientation in ASC 860 for pension funds. Under the current guidelines, there is a reedative presumption that an initial transfer and buy-back financing concluded simultaneously with or in the economic phase between them would be considered to be related to each other and could therefore be considered derivatives if the assignor regained effective control over the assets initially transferred through a buyback. The FASB on Thursday released a revised standard that expresses investors` concerns about financial reporting on retirement transactions and brings U.S. GAAP accounting closer to such IFRS transactions. In June 2014, the FASB released the 2014-11 Accounting Standards Update (ASU), Transfers and Servicing (theme 860): pension transactions to maturity, pension financing and disclosures. The revised rules require companies to deduct securities repurchase transactions (TMRs) as guaranteed obligations. An RTM is a pension contract by which the securities are due on the same day the pension contract ends. Prior to the update, the FASB made a distinction between a TMR and a pension contract in which the securities had not yet expired upon their return to the original portion. Under the previous rules for the TMR agreements, the cedant was not considered to have effective control over the transferred assets, as he would not recover the assets until they expired. Under these conditions, the RTM agreements were considered outright sales (KPMG Defining Issues, “FASB proposes New Accounting Guidance for Repos,” January 2013, No. 13-6).

The obligation to repurchase the securities was not accounted for, so the underlying risk was not on the balance sheet. Under the new rules, the FASB has decided that, although the securities are not returned to the original party due to the maturity of the security, obtaining liquidity at the time of liquidation is essentially the same as receiving the securities.