The main reason for this is that the Financial Accounting Standards Board is allowing for some time is to allow for investors and companies to provide their feedback to the Financial Accounting Standards Board regarding the current framework and feel of the proposals. The two main points of feedback asked for with the proposal is what people and investors think about the proposal and what would they prefer to happen to the rules and reporting requirements. The current deadline for the feedback is March 29th, 2013 (FASB, 2013).
Theoretical Model & Hypotheses
The basic question and issue being address by the Financial Accounting Standards Board as it relates to repurchase agreements is quite clear and is made much more so by consulting the Financial Accounting Standards Board documentation on the topic. They note that the permanent transfer of securities or other things of financial value are not the least bit controversial or chaotic when the transfer of goods is one way and is not contingent on a future transaction that resembles repayment for a loan in any way, shape or form. On the other hand, how to handle transactions where a transfer of goods is temporary and/or the transfer of goods will be reversed at a future date with anything that resembles interest is obviously up for debate and worthy of future review by accountants and other stakeholders that focus on the accounting and auditing reports for a firm (FASB, 2013).
There are a couple of hypotheses that the author of this report would offer. First, it is highly likely that there will be some detractors to the new policy framework but it is also likely that a lot of industry figureheads and leaders will view the proposal as being a good one and will support the framework update as a result. Second, the author of this paper will predict that the proposal will be adopted with little to no changes as there is nothing controversial or wrong-headed about the change as it makes perfect sense for transactions to be recorded based on what they effectively are. Even if a repurchase agreement is not technically a loan, it effectively is and that is the point to be taken from the form and function of the rules (FASB, 2013).
Even with the general agreement on the proper handling of repurchase agreements, the questions surrounding how to account for and administer such transactions is by no means uniform and homogenous and there are people that, legitimately or not, are concerned with how to properly account for such transactions and these people largely do not find the topic of repurchase agreements and the associated accounting handling a settled matter (Chircop, Kiossie & Peasnell, 2012). Given the unsettled nature of these questions, this is why the question is explained and shown in the theoretical framework/hypothesis section of this report.
The reason getting this question right is so very important is because financial institutions make rather heavy use of these transactions. As such, giving the reporting requirements a proper and compliant feel is very important. Taking this string a bit further, many people think the repurchase agreement tactic had a large role to play in the creating and aggravation of the global financial crisis that occurred from 2007 to 2009 both in the United States and around the rest of the world including Europe and other financial centers of the world (Chircop, Kiossie & Peasnell, 2012).
Perhaps one example of this in motion, and the reason for the earlier mention of even holding the accounting standards boards accountable, was the practice of Lehman Brothers (the failed financial firm that self-destructed massively during the Great Recession of 2007 to 2009) to funnel their repurchase agreement transactions through the London office, rather than the United States, so as to avoid the standard enforced by the Financial Accounting Standards Board for United States-oriented and -- initiated transactions (Chircop, Kiossie & Peasnell, 2012).
Part and parcel of what can go terribly wrong when a repurchase agreement is made is when the party extending the collateral and receiving the "loan"...
Lehman Brothers and Risk Management This report examines the Lehman Brothers collapse and discusses issues of investment bank risk management. The report considers factors which contributed to Lehman's failure, from financial engineering as practiced by CEO Richard Fuld and other executives to lax auditing by Ernst & Young to the influence of an industry characterized by excessive risk-taking. In particular, the report focuses on the presence of inherent conflicts of interest,
Lehman Brothers Case Study The author of this report is asked to answer to several case study questions related to the collapse of Lehman Brothers and what led up to it. The first question asks about Lehman Brothers' Repo 105 policy and what, if any, policy Ernst and Young (its auditor) had at that point to develop the accounting policy and process as well as monitor Lehman's usage and compliance of
Lehman Brothers Failure On September 15, 2008, Lehman Brothers, the fourth largest U.S. investment bank at the time, filed for bankruptcy. At the time of its collapse, Lehman Brothers had $639 billion in assets, and $619 billion in debt, making it the largest bankruptcy filing in history. Lehman's collapse also made it the largest victim of the U.S. subprime mortgage crisis. This paper examines the collapse of Lehman Brothers and the
..although these securitization trusts were based on many unaffordable and unsustainable mortgages, it didn't crumble right away because the companies were gouging so much out of the consumer, they still had a high rate of return" but then housing prices dropped and more and more homes were foreclosed upon (Rayman 2008, p.3). At first "Lehman managed to avoid the fate of Bear Stearns, the other of Wall Street's small fry, which
The reason for this is quite simple: it is more than sure that, in the case Lehman manages the buyout, the former management will no longer have a place to work in. The stockholders do not enter the equation, but do negotiate the price of their shares. The interesting aspect is the way Lehman can come up with a sum large enough to cover all of the stockholders' financial demands.
Financial Analysis of Lehman Brother Lehman Brothers The history has been full of financial collapses and financial scandals and one of the biggest financial collapses that a company has ever seen was that of Lehman brother. The collapse of a firm as huge as Lehman Brother and a firm which has such great experience of over a hundred years lead the world into a shock. It created doubts in the minds of
Our semester plans gives you unlimited, unrestricted access to our entire library of resources —writing tools, guides, example essays, tutorials, class notes, and more.
Get Started Now