ASC

ASC 405-940

Financial Services—Brokers and Dealers

405 Liabilities

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In brief

IntermediatePresentationIndustry-specificFinancial instrumentsFinancial statement presentation

This Subtopic addresses liabilities of brokers and dealers in securities, specifically stock-loan and repurchase (repo) transactions entered into to finance investment positions in lieu of a bank loan. Topic 860 supplies the general accounting for whether such transactions are sales or financings. If they are accounted for as financing transactions, the related rebate or interest expense must be presented in the income statement separately from any trading gains or losses.

Key points (5)
  • The Subtopic covers broker-dealer liabilities, including stock-loan and repo transactions used to finance investment positions (405-940-05-1).
  • Scope follows the broker-dealer Overall Subtopic scope in Section 940-10-15 (405-940-15-1).
  • Topic 860 (Transfers and Servicing) provides the general guidance on whether stock-loan and repurchase transactions are accounted for as sales or as secured borrowings (405-940-45-1).
  • When such transactions are accounted for as financings, the rebate or interest expense must be reported in the income statement as an expense separate and apart from trading gains or losses (405-940-45-1).
  • Former implementation guidance at 405-940-55-1 was superseded by ASU 2018-09.

For students. The practical point is presentation: broker-dealers cannot bury repo/stock-loan rebate or interest expense inside trading revenue. A common misunderstanding is thinking this Subtopic decides sale vs. financing treatment — that determination is made under Topic 860; ASC 405-940 only dictates income statement display once financing treatment applies.

broker-dealer liabilitiesstock-loan transactionsrepurchase agreementsfinancing transactionsrebate expenseinterest expense presentationtrading gains and losses

Machine-generated study aid for ASC 405-940. Check the source paragraphs below.

405-940-00Status

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405-940-00-1
The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
Financial Asset (2nd def.)AmendedAccounting Standards Update No. 2016-1912/14/2016
Repurchase AgreementAmendedAccounting Standards Update No. 2014-1106/12/2014
Repurchase Agreement (1st def.)AddedAccounting Standards Update No. 2014-0603/14/2014
Repurchase Agreement (2nd def.)SupersededAccounting Standards Update No. 2014-0603/14/2014
940-405-45-1AmendedAccounting Standards Update No. 2014-0603/14/2014
940-405-55-1SupersededAccounting Standards Update No. 2018-0907/16/2018

405-940-05Overview and Background

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405-940-05-1
This Subtopic addresses liabilities for brokers and dealers in securities (broker-dealers), including stock-loan and repo transactions entered into for the purpose of financing investment positions (such as in lieu of a bank loan).

405-940-15Scope and Scope Exceptions

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Overall Guidance

405-940-15-1
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 940-10-15.

405-940-45Other Presentation Matters

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405-940-45-1
Stock-loan and repurchase transactions may be entered into for the purpose of financing positions (such as in lieu of a bank loan). Topic 860 provides general guidance on such transactions. If such transactions are accounted for as financing transactions, the rebate or interest expense shall be reflected in the income statement as an expense separate and apart from any trading gains or losses.

405-940-55Implementation Guidance and Illustrations

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