In March 2010, the SEC’s Division of Corporation Finance posted an illustrative letter, which had been sent to certain public companies requesting information about repurchase agreements, securities lending transactions, and other transactions involving the transfer of financial assets with an obligation to repurchase the transferred assets. If any repurchase agreements are accounted for as sales, the letter asks the registrant to:
- Quantify the amount of repurchase agreements qualifying for sales accounting at each quarterly balance sheet date for each of the past three years.
- Quantify the average quarterly balance of repurchase agreements qualifying for sales accounting for each of the past three years.
- Describe all the differences in transaction terms that result in certain repurchase agreements qualifying as sales versus collateralized financings.
- Provide a detailed analysis supporting the use of sales accounting for repurchase agreements.
- Describe the business reasons for structuring the repurchase agreements as sales transactions versus collateralized financings. To the extent the amounts accounted for as sales transactions have varied, discuss the reasons for quarterly changes.
- Describe how the use of sales accounting for certain repurchase agreements impacts any ratios or metrics used publicly.
- Disclose whether the repurchase agreements qualifying for sales accounting are concentrated with certain counterparties and/or concentrated within certain countries and the reasons therefore.
- Disclose certain matters if the original accounting on any repurchase agreements has changed.
For those repurchase agreements accounted for as collateralized financings, the letter asks the registrant to quantify the average quarterly balance for each of the past three years, the period-end balance for each of those quarters, the maximum balance at any month end, and the causes/business reasons for significant variances among these amounts. In addition, the registrant is required to make certain disclosures if it has:
- Any securities lending transactions accounted for as sales
- Any other transactions involving the transfer of financial assets with an obligation to repurchase the transferred assets, similar to repurchase or securities lending transactions that are accounted for as sales
- Offset financial assets and financial liabilities where a right of setoff does not exist
The letter also refers the registrant to paragraphs (a)(1) and (a)(4) of Regulation S-K Item 303 regarding disclosures in Management’s Discussion and Analysis for situations in which a registrant accounted for repurchase agreements, securities lending transactions, or other transactions involving the transfer of financial assets with an obligation to repurchase the transferred assets as sales.
View the illustrative letter in full |
