Accounting For Reverse Repurchase Agreement

The new accounting rules will make it more difficult for companies to repeat the aggressive accounting of Lehman`s deposits. The increased transparency afforded by the new rules should allow investors and analysts to better understand the companies that use reaner transactions. This does not eliminate the risk of repurchase transactions, but underscores the need for ongoing monitoring and monitoring to prevent future abuses. The new direction was surprisingly supported by financial institutions. Chart 3 summarizes responses received from the FASB from two requests for advice. The first exposure project for the purpose of effective control of pension operations (November 2010) is expected to change the criteria for the introduction of effective control. It resulted in comments containing proposals that were then included in the final standard (« FASB proposes new accounting guidelines for rest, » KPMG Defining Issues, January 2013, No. 13-6). In particular, the massive support for the proposal in 2010 should be highlighted.

The eight responses of the public audit firm can be qualified either in favour of the proposal or in favour of the proposal. Out of a total of 19 responses, 16 can be labelled as preferred or qualified for the proposal. However, the second exhibition project, Effective Control for Transfers with Forward Agreements to Healthcare Assets and Accounting for Repurchase Financings (January 2013), received more mixed support. Securities purchased under resale contracts (« reverse pensions ») and securities sold in repurchase transactions (« pensions ») are considered guaranteed financing transactions and are accounted for at fair value in the first place, i.e. the amount of cash paid or received. The party paying the money takes possession of the collateral that serves as collateral for the financing and which have a market value equal to or greater than the amount of the capital borrowed. Securities received under self-payment agreements and securities delivered in repurchase transactions are not recorded or recognized from the balance sheet unless the risks and income of the property are determined or abandoned. In a pension agreement, a trader sells securities to a counterparty with the agreement to buy them back at a higher price at a later date. The trader takes short-term measures at a favourable interest rate with a low risk of loss.

The transaction is concluded with a reverse-repo. That is, the counterparty resold them as agreed to the trader. An RRP differs from Buy/Sell Backs in a simple but clear way. Purchase/sale agreements document each transaction separately and provide a clear separation in each transaction.

 

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