Reverse pension arrangements (RRPs) are the end of a repurchase agreement. These instruments are also called secured loans, buy/sell back loans and sell/buy back loans. On the basis of IFRS 15, the repo transaction should be considered as a financing agreement that does not yield income. An EIA is easily but clearly distinguishable from Buy/Sell Backs. Buy/sell-back agreements legally document each transaction separately and ensure clear separation for each transaction. In this way, any transaction can be legally isolated, without the application of the others. In contrast, RSOs have legally documented each phase of the agreement under the same contract and guarantee availability and entitlement at each stage of the agreement. Finally, in a CRR, although warranties are essentially purchased, warranties in general never change the physical location or actual ownership. If the seller is late against the buyer, the warranties must be physically transferred. Balance sheet (financial assets): When the financial asset (borrowing) is sold as part of a repo transaction, it cannot be recognised in the accounts, as the transferor essentially retains all the risks and opportunities of the property. In the borrower`s accounts, the bonds are recognised as an asset and the cash received from the lender is recognised as a liability as a „repo loan“. The amount of cash transferred depends on the market value of the securities, less a certain percentage used as a buffer. This cushion, called haircut, protects the buyer in case the securities have to be liquidated to be repaid.
In addition, the transferor undertakes to repurchase the securities at a higher price at a given later date. The repurchase price is generally higher than the initial price paid by the buyer, the difference being equal to the interest. Since the contemptuous is contractually obliged to redeem the securities at an agreed price, he retains a large part of the ownership risk. In this paper, we discuss the accounting of repo transactions, referring to how repo transactions are characterized by U.S. bankruptcy law and in light of recent developments in the U.S. repo market. We conclude that current accounting rules, which require the recording of most transactions, such as secured loans, can lead to opacity in a company`s financial statements, as they poorly characterize the economic substance of retirement transactions. In addition, the recognition of the retreat transactions as sales and the simultaneous recording of a futures transaction, since Lehman Brothers` „Repo 105“ transactions were set on fire, had no merit. In particular, such a method gives a more complete and transparent picture of the economic substance of those transactions. In June 2014, the FASB published Accounting Standards Update (ASU) 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The revised rules require companies to account for rebalancing operations (GTRs) as secured credits.
An rtM is a repo contract in which securities are due on the same day retirement ends. . . .