The US Financial Accounting Standards Board (FASB) has launched a consultation on a proposal to improve financial reporting about repurchase agreements and other transfers with forward agreements to repurchase transferred assets, which could bring the standard into line with International Financial Reporting Standards (IFRS) if adopted.

The proposed accounting standards update, Transfers and servicing (topic 860): Effective control for transfers with forward agreements to Repurchase Assets and Accounting for Repurchase Financings, would clarify the guidance for distinguishing these transactions as either sales or secured borrowings and improve disclosures about them.

The proposed guidance would eliminate the distinction between agreements that settle before the maturity of the transferred asset and those that settle at the same time as the transferred asset matures. As a result, both types of transfers with forward agreements to repurchase the transferred assets or 'substantially-the-same' assets at a fixed price would maintain the transferor's effective control during the term of the agreement and would be accounted for as secured borrowings.

For these types of arrangements, the proposed guidance would result in financial reporting that is more comparable with IFRS. When the transferor does not maintain effective control over a transferred financial asset, the transaction would be required to be assessed under the remaining derecognition conditions in US GAAP to determine whether it should be accounted for as a secured borrowing or sale with a forward repurchase agreement.

The proposed guidance would also clarify the characteristics of assets that may be considered 'substantially the same' and would require new disclosures for certain transfers with forward agreements to repurchase the transferred assets.

In addition, the proposed amendments would change the accounting for a transfer of a financial asset and contemporaneous repurchase agreement financing that asset between the same counterparties (repurchase financings). The proposed guidance would eliminate the current requirement to account for the initial transfer and related repurchase agreement on a combined basis in some circumstances, and would instead require separate accounting for the initial transfer and the repurchase financing.

The consultation period closes on 29 March 2013.

The publication FASB In Focus discussing the proposal is available HERE