Repo Rules to Be Changed by FASB
FASB known as The Financial Accounting Standards Board is planning to change the accounting standard rules regarding repurchase agreement as many people have criticized the role “repo” which was came into existence in the collapse of Lehman Brothers.
The basic this which is contained in the repurchase agreement is that the transferor can repurchase or redeem the assets before they leave the level of maturity.
A typical repo transaction is where an entity transfers its assets to another party and receives cash in exchange and makes agreement with the counterparty that the same asset will be returned or a fixed price will be paid in the future.
FASB continuously makes changes to the standards to make them as much easy and as effective as possible. The amendments regarding the repo transaction also consist of removing the obligation for the transferor to repurchase the assets.
The exact statement provided by FASB acting chairman namely Leslie Seidman contained some of the words: “During the global crisis, there were many suggestions showing up regarding repo as whether it should be taken as a sale or secured borrowing.”
Still no decision has been made and FASB is still hearing suggestions of different people and will continue to do so for 1 or 2 more months so as to reach a good final decision. FASB has also given the date of 15 January which is the deadline for comments and proposals regarding repo, after that hopefully we will hear a decision and some changes in the accounting standard.