During the global economic crisis, capital market participants questioned the necessity and usefulness of assessing the transferor's ability criterion when determining whether a repo should be accounted for as a sale or as a secured borrowing. It is also not a consideration under international accounting standards (IAS 39 Financial Instruments: Recognition and Measurement forbids the derecognition of these financial instruments in most cases). The Board concluded that an entity's assurance of its ability to perform in accordance with its contractual rights or satisfy its contractual obligations should not be a determining factor as to whether an entity has (or does not have) effective control. The amendments in this Update remove from the assessment of effective control the transferor's ability criterion. It also removes implementation guidance related to that criterion.

Please click for:

• Accounting Standards Update 2011-03 Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements (link to FASB website)
• Heads Up: FASB Amends Guidance on Effective Control in Repurchase Agreements (PDF 95k)