FASB Issues New Rules for
Repurchase Transactions
Summary
On June 12, 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU)
2014-11, Transfers and Servicing (Topic 860), Effective Control for Forward Agreements to Repurchase Assets and
Accounting for Repurchase Financings. FASB’s objective was to improve existing accounting and disclosure
guidance on repurchase agreements and similar transactions. The board acted to address concerns that certain
off-balance sheet accounting treatment used extensively by both Lehman Brothers and MF Global hid risks from
investors prior to their collapse. The ASU’s disclosures are meant to provide greater transparency for financial
statement users to evaluate transactions accounted for as sales compared to similar transactions accounted for as
secured borrowings. The ASU brings U.S. financial reporting more in line with International Financial Reporting
Standards (IFRS) for secured borrowings.
Scope
The ASU would affect all entities, both public and nonpublic, entering into repurchase-to-maturity transactions and
repurchase financings. A repurchase financing is the sale of a financial asset with a corresponding transfer of the
asset back to the party from which it was purchased as collateral for a financing transaction. While in some cases
the accounting treatment may not change, additional disclosures will be required.
Accounting Changes
Repo-to-Maturity Transactions
Currently, an accounting distinction exists between different types of repurchase arrangements. A repo-tomaturity is a repurchase agreement where the repurchase date is the maturity date of the transferred financial
asset and is currently accounted for as a sale with a forward agreement. Repurchase agreements that settle
before maturity are accounted for as secured borrowings. Determining whether a transfer is a sale or an onbalance-sheet secured borrowing depends on whether the transferor maintains “effective control” over the
transferred asset. Effective control is maintained by a transferor—meaning secured borrowing accounting is
required—if there is a contemporaneous forward agreement to repurchase the same or “substantially the same”
financial asset at a fixed price from the transferee before its maturity. Effective control is not maintained if a
transferor will not recover the transferred asset at the conclusion of the agreement because the asset has
matured, resulting in sale accounting if other criteria are met. Financial statement users have noted that during
the term of both types of transactions, the transferor retains exposure to the credit risk related to the transferred
asset and obtains certain benefits from the asset, meaning an accounting distinction is not warranted.
Rather than changing the effective control guidance, FASB chose to make a limited exception for repo-to-maturity
transactions. The exception created in the ASU eliminates the existing accounting distinction and requires repo-tomaturity transactions to be treated as secured financings, meaning the transferred asset remains on the balance
sheet—better reflecting the transferor’s obligations and risk under these transactions.
For both types of transactions, effective control would be maintained by the transferor when all of the following
conditions are met:
FASB Issues New Rules for Repurchase Transactions

The repurchased assets are the same or substantially the same as those initially transferred

The repurchase price is fixed or readily determinable

The agreement is entered into simultaneously with or in contemplation of the initial transfer
If the transferor fails to meet the above criteria, the transaction would be assessed under the remaining
derecognition conditions in U.S. generally accepted accounting principles (GAAP) to determine whether it should
be accounted for as a secured borrowing or sale with a forward repurchase agreement.
“Linked” Repurchase Financings
Under current guidance, repurchase agreements entered into as part of a repurchase financing may be required to
be accounted for on a “linked” basis, with the original transfer and repurchase agreement analyzed as a single
transaction. As a result, the purchaser may account for the transaction as a derivative instrument as opposed to a
purchase and a financing. The guidance permits separate accounting only if there is a valid business or economic
purpose for the counterparties to enter into two transactions separately and the repurchase financing does not
return control of the previously transferred financial asset to the transferor.
The ASU requires accounting for the repurchase agreements to be separate from the original transfer, rather than
being linked with the original transfer and analyzed as a single transaction. This means the initial transferor will
account for the initial transfer as a sale of financial assets (if all derecognition criteria are met) and the initial
transferee will account for the initial transfer as a purchase. Both parties would account for the repurchase
component as a secured borrowing.
Disclosure
The ASU requires two new disclosures. The first disclosure is required if there is different accounting treatment for
certain transactions that are similar to the repurchase agreement but that are accounted for as a sale, e.g.,
securities lending agreements that are economically similar but executed in different form.
The second disclosure is required for transactions accounted for as securities borrowings, providing increased
transparency about the types of collateral pledged in repurchase agreements and other secured borrowing
transactions. For most entities, current disclosure requirements do not result in disclosing information about the
nature of the supporting collateral.
The ASU offers additional time to prepare the new required disclosures, giving preparers additional time for
systems compliance in applying the disclosures.
Sales of Financial Assets
The ASU requires additional disclosure to help financial statement users understand the nature of the transactions,
the transferor’s continuing exposure to the transferred financial assets and the presentation of the components of
the transaction in the financial statements. The additional disclosure is required for transfers accounted for as
sales, disaggregated by transaction type, including:

Carrying amounts of assets derecognized as of the date of the initial transfer in transactions for which an
agreement with the transferee remains outstanding at the reporting date; if the amounts have changed
significantly from prior periods or are not representative of the activity throughout the period, a
discussion of the reasons for the change should be disclosed

Gross cash proceeds received by the transferor as of date of derecognition

Information about the transferor’s ongoing exposure to the transferred financial assets, including
•
•
Fair value of assets derecognized
Amounts recorded in the financial statements related to agreements accounted for as sales (the
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FASB Issues New Rules for Repurchase Transactions
•
forward purchase commitment accounted for as a derivative) with a cross-reference to the
disclosure required by Accounting Standards Codification 815, Derivatives and Hedging
Description of the arrangements that result in the transferor retaining substantially all of the
exposure to the transferred financial assets and the risks related to those arrangements
This disclosure would be required for certain transactions:

A transfer of a financial asset accounted for as a sale

An agreement with the same transferee entered into in contemplation of the initial transfer that results in
the transferor retaining substantially all of the exposure to the economic return of the transferred
financial asset throughout the contract term
This definition could cover repurchase arrangements, securities lending arrangements and sales with a total return
swap. This disclosure would not be required for dollar roll transactions that do not meet the “substantially-thesame” characteristics.
Transfers of Financial Assets Accounted for as Sales
At the Date of Derecognition
for Transactions Outstanding
Carrying
Amount
Derecognized
Cash
Proceeds
At the Reporting Date
Fair Value of
Transferred
Assets
Gross
Derivative
Assets
Recorded
Gross
Derivative
Liability
Recorded
Type of Transaction
Repurchase agreements
Sale and a total return swap
Securities lending
Total
This disclosure is effective for public entities for interim and annual periods beginning after December 15, 2014.
For all other entities, the disclosures are required for annual periods beginning after December 15, 2014, and for
interim periods beginning after December 15, 2015.
Asset Quality Disclosures
The repo and securities lending markets have changed dramatically since FASB issued its first guidance on
repurchase agreements in 1996. The market has expanded beyond the traditional U.S. treasury and government
agency securities to include asset-backed securities, structured debt securities and sovereign debt securities, which
can be less liquid in volatile markets. The ASU requires new disclosure about the asset quality of transferred
financial assets to provide financial statement users with more transparent information to evaluate potential risk.
For repurchase agreements and securities-lending transactions accounted for as secured borrowings, the following
information is required disaggregated by financial asset class:

A disaggregation of the gross obligation by the class of collateral pledged

Remaining contractual maturity of repurchase agreements, securities lending transactions and
repurchase-to-maturity transactions

Potential risks of the agreements and related collateral pledged, including any obligation arising from a
decline in the fair value of the collateral pledged and how those risks are managed
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FASB Issues New Rules for Repurchase Transactions
Repurchase Agreements, Securities Lending Transactions & Repurchase to Maturity Transactions Accounted
for as Secured Borrowings
20xx[SL1]
Remaining Contractual Maturity of the Agreements
Overnight &
Continuous
<30 days
30-90 days
>90 days
Total
Repurchase Agreements and
Repurchase to Maturity
U.S. Treasury & agency securities
State & municipal securities
Asset-backed securities
Corporate debt
Equity securities
Non-U.S. sovereign debt
Total
Securities Lending Transactions
U.S. Treasury & agency securities
State & municipal securities
Asset-backed securities
Corporate debt
Equity securities
Non-U.S. sovereign debt
Total
Total Borrowings
These disclosures are effective for public entities for annual periods beginning after December 15, 2014, and
interim periods beginning after March 15, 2015. For all other entities, the disclosures are required for annual
periods beginning after December 15, 2014, and for interim periods beginning after December 15, 2015.
Effective Date & Transition
For transition, a cumulative-effect approach is required. An entity would apply the amendments to transactions
outstanding as of the effective date with no adjustment to prior periods presented.
No additional transition disclosures are required beyond those that are already required by Topic 250, Accounting
Changes and Error Corrections.
For public entities, the ASU would be effective for annual periods, and interim periods therein, beginning after
December 15, 2014. For all other entities, the changes would be effective for annual periods beginning after
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FASB Issues New Rules for Repurchase Transactions
December 15, 2014, and interim periods beginning after December 15, 2015.
Early adoption is prohibited for public entities. Other entities may elect to apply the requirements for interim
periods beginning after December 15, 2014, the effective date for a public entity.
For more information on how these new rules could affect your organization, contact your BKD advisor.
Contributor
Anne Coughlan
Director
317.383.4000
acoughlan@bkd.com
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