Should repurchase transactions be accounted for as sales or loans?

Chircop, Justin and Kiosse, Paraskevi Vicky and Peasnell, Ken (2012) Should repurchase transactions be accounted for as sales or loans? Accounting Horizons, 26 (4). pp. 657-679. ISSN 0888-7993

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Abstract

In this paper, we discuss the accounting for repurchase transactions, drawing on how repurchase agreements are characterized under U.S. bankruptcy law, and in light of the recent developments in the U.S. repo market. We conclude that the current accounting rules, which require the recording of most such transactions as collateralized loans, can give rise to opaqueness in a firm's financial statements because they incorrectly characterize the economic substance of repurchase agreements. Accounting for repurchase transactions as sales and the concurrent recognition of a forward, as “Repo 105” transactions were accounted for by Lehman Brothers, has furthermore overlooked merits. In particular, such a method provides a more comprehensive and transparent picture of the economic substance of such transactions.

Item Type:
Journal Article
Journal or Publication Title:
Accounting Horizons
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/2000/2001
Subjects:
ID Code:
64290
Deposited By:
Deposited On:
01 May 2013 08:52
Refereed?:
Yes
Published?:
Published
Last Modified:
15 Jan 2020 07:37