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FASB tightens rules regarding classification of sales vs. repurchase agreement

The Financial Accounting Standards Board is set to tighten some of the rules r

The Financial Accounting Standards Board is set to issue new guidance distinguishing between a sale and a repurchase agreement or secured borrowing, according to a recent report from Compliance Week.

"During a recent meeting, FASB tentatively decided it will extend an exception to the rules for financial asset sale accounting for certain sale and repurchase agreements," the source said. "It will require secured borrowings accounting for transactions that involve the sale and purchase of not only identical financial assets, but also financial assets that are substantially similar."

The need for clarification stems from the practices used by large financial firms in the runup to the economic collapse of 2008. The source pointed to the example of Lehman Brothers, which used repurchasing accounting to move tens of millions of dollars around in an effort to disguise the company's true debt liability. 

the FASB will also require organizations to disclose these financial asset transactions in their annual reports. Specifically, the regulatory board will require that companies report the reasoning behind classifying a transaction as a sale or secured borrowing, and the accounting reasoning behind transactions that involve "substantially similar but not identical assets," the source reported.