Accounting Treatment For Sale And Repurchase Agreements

Paragraph 66 provides that the client does not acquire any control over the asset during repo transactions and must therefore continue to record the asset in its financial statements, even though the asset is used by a third party, as the client has limited the ability to use the asset, since it is a repo transaction. On the other hand, if the redemption price is higher than the initial sale price, the entity must account for that transaction as a financing contract. As a general rule, a customer has a strong incentive to exercise an option if the redemption price is likely to exceed the market value of the deal at the time of the redemption. Since this assessment requires estimates, management must use good judgment to determine the factors that will be considered in this assessment. The method of determining the nature of a retirement transaction has evolved considerably from ASC 605 to ASC 606. In accordance with ASC 605, guidance focused on whether the risks and opportunities of ownership were transferred to the client. ASC 606 focuses on both the type of redemption rights and the difference between the redemption price and the initial sale price. This change in focus facilitates instructions, which can simplify some ambiguous situations that occur in ASC 605. In the case of an open or call option, the client cannot control the use of the asset to obtain all its benefits, indicating that the client has no control over the asset. Therefore, the entity does not comptrate income when it transfers the asset, but continues to record the asset and record a liability in its accounts. Call and call options are taken into account on the basis of whether the buy-back price is more or less than the initial selling price: when comparing the buy-back price with the initial sale price, the entity should take into account the present value of the money. The impact of the present value of the money can be large enough for accounting to move from a financing agreement to a leasing contract.

The recording of the proceeds of the sale as a financial liability DR Cash / CR Financial liabilities Retirement operations are recognised in different ways depending on the nature of the retirement operations and the contractual conditions. For call and call options, the redemption price is compared to the initial sale price to determine whether the transaction should be accounted for as a leasing or financing agreement. For sale options, the redemption price is compared to the initial sale price and the expected market value of the asset at the end of the contract, in order to determine whether the transaction should be accounted for as a lease, financing agreement or sale with right of return. CSA 606 significantly changed the centre of gravity of the pension guidelines and made things easier. This should simplify some ambiguous situations that currently occur under ASC 605. Finally, ASU 2014-11 also expands disclosure requirements for the disclosure of financial assets, which are recorded as sales, as well as for certain transfers recorded as secured loans (Abhinetri Velanand, Shahid Shah and Adrian Mills, “FASB makes Limited Amendments to its Repurchase Accounting Guidance,” Deloitte Heads Up, June 19, 2014). For all repurchase transactions or agreements marked in sales, it is necessary to provide information on the accounting amounts, the amounts received for securities, the current obligations of the agreement and the related amounts entered in the balance sheet. In addition, the annex should contain, for all repurchase transactions and agreements recognised as covered obligations, information on mortgaged collateral, remaining liabilities and a risk assessment. For example, where an entity signs a contract to sell an asset to a third party and has the option to repurchase the asset at a value lower than the original sale price, the entity must, in the view of the lessor, record that transaction in accordance with IFRS 16. . .