A company enters into a contract to sell a facility to a debiteur for $1,200. The contract offers the entity the opportunity to repurchase the asset at a price of $1300 within three years. The transaction is not part of a lease-sale agreement. The company uses a discount rate of 5 per cent for similar transactions. Should this transaction be counted as a lease or financing agreement? Pension or rest operations have been in place since 1917 and play an important role in short-term liquidity markets. Although the objective of a typical repoe is to provide a short-term loan between two parties, accounting standards have, in certain circumstances, allowed the transaction to be registered as a sale. Repos made headlines in 2008, when Lehman Brothers went bankrupt, and highlighted their particular accounting methods for these transactions. Three years later, the use of rest-to-maturity was blamed for the collapse of MF Global. This article describes how Lehman Brothers and MF Global manipulated and operated the sales accounting method for re boarding agreements and subsequent revisions to accounting standards. In addition to the information required by CSA 860, the proposed ASU would require companies to disclose from each closing date (1) the “gross amount of total borrowing, broken down by default” for deposits recorded in secured bonds and (2) the book value of assets recorded during the reference period only because the assets repurchased did not meet the same requirements. The new accounting rules will make it more difficult for companies to repeat the aggressive accounting of Lehman`s deposits. The increased transparency afforded by the new rules should allow investors and analysts to better understand the companies that use reaner transactions. This does not eliminate the risk of repurchase transactions, but underscores the need for ongoing monitoring and monitoring to prevent future abuses.

If the rest meets the revised conditions of effective control, the transaction would be counted as a guaranteed loan (it would not be necessary to assess the other general conditions of de-accounting of CSA 860 related to the legal isolation and the purchaser`s pledge or exchange rights). However, if counterparties do not meet one or more of the effective control conditions mentioned above to determine whether transactions such as secured bonds or forward sales should be taken into account, the companies would continue to apply the other general terms of de-accounting of CSA 860.7 In a TMR, the closing date corresponds to the maturity of the security , which allows the purchaser to either return the security to the ceding company or to remove it from the issuer. Most MRTs are offset by a net payment on the due date. Since the seller does not re-enter the asset, the control is considered abandoned according to accounting standards, so a sale is recorded on the day of the start of trading. Earnings are recorded on the day of the sale and the guarantee is removed from the seller`s accounting documents, eliminating the subsequent effects on the account of profits and losses related to changes in market values. Because the securities purchased by MF Global were issued by countries in financial crisis, the risk of a future loss relative to other types of securities was higher and the detection of securities eliminating the risk of accounting for future losses.