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U.S. comment letter on proposed ASU "Effective Control for Transfers With Forward Agreements to Repurchase Assets and Accounting for Repurchase Financings"

Published on: Mar 28, 2013

An excerpt from the comment letter is shown below:

We support the Board’s objective of improving the accounting for and disclosures about repurchase agreements. However, we have concerns about certain aspects of the proposed ASU and do not believe that it should be finalized in its current form.

As described in greater detail in the appendix below, our primary concerns are that the proposed amendments:

  • Establish an exception to the effective-control model for transfers of financial assets with forward agreements to repurchase these assets at their maturity (repurchase-at-maturity transactions) that would not be consistently applied to economically similar transactions.
  • Do not reflect the economics of repurchase financing transactions and conflict with other guidance on transactions that are executed contemporaneously.
  • Potentially require disclosures that would include an overly broad range of information about transactions that involve financial instruments that are not substantially the same.

We recommend that in the short term the Board address the concerns of financial statement users by adding disclosure requirements about forward commitments, including repurchase agreements. Such additional requirements may be more effective and less disruptive, and may result in greater consistency, than the amendments in the proposed ASU. However, we believe that in the longer-term, instead of further modifying the effective-control model just for repurchase-at-maturity agreements, the Board should reconsider the accounting for repurchase agreements as part of a broader project on derecognition of financial instruments. In that project, the Board should reexamine whether there is a need to differentiate between repurchase agreements and other sales of financial instruments with other forms of continuing involvement. A single model for the derecognition of financial instruments that is grounded in principles consistent with the conceptual framework’s definition of assets and liabilities and supported by appropriate disclosures (or presentation) should (1) yield results that are more decision-useful than the proposed model, (2) be less complicated to apply, and (3) foster the application of similar accounting to similar economic transactions.

If the Board moves forward with the proposed ASU in its current form, we recommend that it reassess or clarify the operationality of the proposed guidance on the “substantially the same” criteria for transactions involving tobe-
announced securities.

Full text of the comment letter is available below.

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