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Journal entry — Repurchase agreements — FASB makes decisions in response to feedback

Published on: Mar 13, 2014

At its meeting yesterday, the FASB discussed the results of targeted outreach conducted by its staff on the decisions related to disclosure requirements that the Board reached at its December 18, 2013, meeting (see Deloitte’s December 20, 2013, journal entry for more information). On the basis of the feedback received, the Board made tentative decisions on the following topics: (1) disclosures related to the quality of the transferred financial assets in repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions that are accounted for as secured borrowings and (2) the effective date of such disclosures.

Disclosures Related to Quality of the Transferred Assets

At its December meeting, the Board tentatively decided to enhance the transparency of collateral supporting repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions that are accounted for as secured borrowings by requiring the following disclosures (as outlined in the board handout for yesterday’s meeting):

(a)    A disaggregation of the gross obligation arising by class of collateral pledged

(b)    The fair value of each class of collateral pledged as of the reporting date

(c)    The remaining weighted-average contractual duration for each class of collateral pledged

(d)   The remaining contractual maturity of agreements by class of financial assets

(e)    A qualitative discussion of any obligation arising from a decline in the fair value of the collateral pledged.

As a result of the staff’s outreach, the Board tentatively decided to:

  • Eliminate the requirement related to disclosing the fair value of each class of collateral pledged (see (b) above).
  • Eliminate the requirement related to disclosing the remaining contractual maturity of agreements (see (d) above).
  • Amend (c) above to require an entity to present the remaining weighted-average contractual duration; however, entities will no longer be required to provide this disclosure by “class of the collateral pledged.”

Editor’s Note: The staff noted that stakeholders cited operational difficulties associated with providing the information in (b) and (d). In particular, many preparers indicated they would have trouble providing gross collateral information because of the collateral netting process that occurs between repurchase agreements and reverse repurchase agreements.

Effective Date

For both public and nonpublic entities, the board also tentatively decided to extend the effective date of the disclosure requirement related to the quality of the transferred financial asset (discussed above) to annual and interim periods beginning on or after March 15, 2015.

Editor’s Note: The guidance in the final standard will otherwise remain unchanged as will the effective dates of the remaining disclosure requirements, which are as follows:

  • Public entities — the final standard will be effective for annual periods (and interim periods within those annual periods) beginning after December 15, 2014. Early adoption is not permitted.
  • Nonpublic entities — the final standard will be effective for annual periods beginning after December 15, 2014, and interim periods beginning after December 15, 2015. Nonpublic entities may elect to early adopt the requirements for interim periods beginning after December 15, 2014.

Next Steps

The final standard is likely to be issued in the second quarter of 2014.

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