Today, the FASB redeliberated the amendments in its proposed Accounting Standards Update (ASU) on repurchase agreements,¹ making several tentative decisions about the project.² The amendments in the proposed ASU would remove from the assessment of effective control under ASC 860³ the criterion requiring the transferor to have the ability to repurchase or redeem transferred financial assets on substantially the same terms. After hearing an overview of constituents’ feedback received during the comment letter process, which generally supported the proposal, the Board unanimously reaffirmed its decision to remove the criterion.

The Board also reached two tentative decisions that modify the original proposals in the proposed ASU:

• The Board decided to make the new requirements effective for an entity’s first interim or annual period beginning after December 15, 2011 (i.e., a calendar-year-end entity would be required to adopt the new guidance as of January 1, 2012). To promote comparability in affected industries, the Board voted not to permit early adoption.
• The Board determined that a final ASU should clarify that the guidance should be applied on a transactional basis and not on a broader basis (e.g., a group of transactions executed under a master netting agreement). The new guidance would apply only to transfers initiated or modified after the effective date of the final ASU.

The Board also discussed whether a final ASU should include enhanced disclosure requirements related to the impact of repurchase agreements on an entity’s exposure to liquidity risk and credit risk. Although the Board decided not to create any new disclosure requirements, multiple Board members cited the need for additional disclosures but believed the FASB should defer any such considerations until the SEC finishes its project on expanding the disclosure requirements for short-term borrowings.⁴ The Board noted that it would continue to closely monitor the status of the SEC’s project.

The FASB staff indicated that the final ASU is expected to be issued in early May.

[1] Proposed FASB Accounting Standards Update, Reconsideration of Effective Control for Repurchase Agreements.

[2] For more information about the proposed ASU, see Deloitte’s November 4, 2010, Heads Up.

[3] FASB Accounting Standards Codification Topic 860, Transfers and Servicing.

[4] See SEC Proposed Rule Release No. 33-9143, Short-Term Borrowings Disclosure.