To explain the difference between the sales bill and the secure loan, look at the example of Lehman Brothers, which used major repo programs before finally going bankrupt in 2008. His practices are described in more detail in “How Lehman Brothers and MF Global`s Misuse of Repurchase Agreements Reformed Accounting Standards” on page 44 of this issue. In short, Lehman`s goal in using repo operations was to reduce the overall size of its balance sheet and reduce its leverage ratio, both of vital importance to maintaining a good credit rating. Guaranteed credit accounting does not achieve this objective and would result in unchanged leverage ratios. As a result, Lehman held a sales accounting with a buyout agreement. In this treatment, there is no recognition of a contractual obligation to repurchase in the balance sheet. The securities are debited at the time of return, the call option is removed and the cash returned to the lender includes an interest payment. Exhibits 1 and 2 illustrate this approach. In total, Repos Lehman helped remove up to $50 billion of debt from the balance sheet, which had little or no impact on other financial statements. On the other hand, if the repurchase price is higher than the original selling price, the entity must take this transaction into account as a financing agreement. “The new guidelines will address investor concerns about the distinction made in GAAP between repurchase transactions that simultaneously settle the maturity of transferred financial assets and those that charge at any time before maturity,” FASB President Russell Golden said in a statement. Pension transactions are generally of three forms: after all, the purchase price in the contract with the last customer is less than the original selling price and the market price is higher than the original selling price, so this type of transaction must be recognized as a preferential sale. 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.