The Financial Accounting Standards Board has issued final guidance on transfers of financial assets and repurchase financing, which should have an impact on the mortgage and real estate investment trust industry.

FASB Staff Position 140-3, "Accounting for Transfers of Financial Assets and Repurchase Financing Transactions" clarifies FASB Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which provides accounting and reporting standards for transfers of financial assets.

Statement 140 requires that all involvements of a transferor with the transferred financial asset be considered in analyzing whether the transferor has surrendered control over the transferred financial asset, even if those involvements occur subsequent to the transfer. Statement 140 also provides guidance on how to account for a repurchase agreement.

FASB said that questions had arisen about the accounting for a repurchase agreement that relates to a previously transferred financial asset (a repurchase financing), specifically, whether there are circumstances that would permit a transferor and a transferee to evaluate the accounting for a transfer of a financial asset separately from a repurchase financing when the counterparties to the two transactions are the same under Statement 140.

Questions about the accounting for repurchase financings were first noted in the mortgage real estate investment trust industry, but other industries also will be affected by the FASB Staff Position.

FASB said that a transferor and transferee shall not separately account for a transfer of a financial asset and a related repurchase financing unless (a) the two transactions have a valid and distinct business or economic purpose for being entered into separately, and (b) the repurchase financing does not result in the initial transferor regaining control over the financial asset.

The FASB Staff Position is effective for financial statements issued for fiscal years beginning after Nov. 15, 2008, and interim periods within those fiscal years.

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