This Subtopic provides guidance on transactions that are accounted for as secured borrowings with a
transfer of
collateral.
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section
860-10-15, with specific transaction qualifications noted below.
This Section provides guidance on the recognition of
transfers of financial assets as secured borrowings with a pledge of
collateral. It addresses the following areas:
- a
Cash collateral
- b
Noncash collateral
- c
Cash or securities received as proceeds
- d
Sales of collateral received.
Transfers of financial assets in exchange for cash collateral cannot be distinguished from borrowing cash. Further, because cash is fungible, it is impossible to determine whether it has been used by the secured party. Accordingly, all cash collateral shall be recorded as an asset by the party receiving it (the secured party), together with a liability for the obligation to return it to the payer (obligor), whose asset is a receivable.
Cash collateral used, for example, in securities lending transactions (see paragraphs ) shall be derecognized by the obligor and recognized by the secured party, not as collateral but rather as proceeds of either a sale or a borrowing. See paragraphs
for further discussion of recognition of cash and noncash collateral as proceeds of a transfer.
The accounting for noncash collateral by the obligor (or debtor) and the secured party depends on whether the secured party has the right to sell or repledge the collateral and on whether the obligor has defaulted. Noncash collateral shall be accounted for as follows:
- a
If the secured party (transferee) has the right by contract or custom to sell or repledge the collateral, then paragraph 860-30-45-1 requires that the obligor (transferor) reclassify that asset and report that asset in its statement of financial position separately (for example, as security pledged to creditors) from other assets not so encumbered. - b
If the secured party (transferee) sells collateral pledged to it, it shall recognize the proceeds from the sale and its obligation to return the collateral. The sale of the collateral is a transfer subject to the provisions of this Topic.
- c
If the obligor (transferor) defaults under the terms of the secured contract and is no longer entitled to redeem the pledged asset, it shall derecognize the pledged asset as required by paragraph 860-30-40-1 and the secured party (transferee) shall recognize the collateral as its asset. (See paragraph 860-30-30-1 for guidance on the secured party's initial measurement of collateral recognized. See paragraph 860-30-40-1 for further guidance if the debtor has sold the collateral.) - d
Except as provided in paragraph 860-30-40-1 the obligor (transferor) shall continue to carry the collateral as its asset, and the secured party (transferee) shall not recognize the pledged asset.
Paragraph
860-10-55-55A discusses securities lending transactions in which the criteria in paragraph
860-10-40-5 for a sale are met. The following guidance relates to securities lending or similar transactions in which a transferor (lender) transfers securities and receives either cash or securities as collateral and the transfer does not meet the sale criteria in that paragraph.
In a securities lending transaction, the transferor of securities being loaned accounts for cash received in the same way whether the transfer is accounted for as a sale or a secured borrowing. Cash collateral or securities received as collateral that a securities lender is permitted to sell or repledge are the proceeds of a borrowing secured by them. The cash received shall be recognized as the transferor's asset, as shall investments made with that cash, even if made by agents or in pools with other securities lenders, along with the obligation to return the cash. If securities that may be sold or repledged are received, the transferor of the securities being loaned accounts for those securities in the same way as it would account for cash received. See Example 1 (paragraph
860-30-55-1) for an illustration of a securities lending transaction that is accounted for as a secured borrowing in which cash collateral is transferred.
Obligations to return to the transferor assets borrowed and then sold have sometimes been effectively recognized as part of a liability for securities sold but not yet purchased, and this Section does not require any change in that practice.
This Section provides subsequent measurement guidance for the following assets and liabilities related to
transfers that are accounted for as secured borrowings:
- a
Pledged assets required to be reclassified
- b
A transferor that has transferred collateral that must be reclassified in accordance with paragraph 860-30-25-5(a) (for example, as securities pledged to creditors) shall not change its measurement of that collateral. The transferor shall follow the same measurement principles as before the transfer. For example, securities reclassified from the available-for-sale category to securities pledged to creditors should continue to be measured at fair value, with changes in fair value reported in comprehensive income, while debt securities reclassified from the held-to-maturity category to securities pledged to creditors should continue to be measured at amortized cost. See Topic
320 for guidance related to measurement of investments in securities classified as available for sale and held to maturity.
In circumstances where an obligor (
transferor)
transfers noncash
collateral in a secured borrowing and
the obligor (transferor) defaults under the terms of the secured contract and is no longer entitled to redeem the pledged asset, the obligor shall derecognize the pledged asset. If the secured party has already sold the collateral, the secured party shall derecognize its obligation to return the collateral. Otherwise paragraph
860-30-25-5(c) addresses the secured party's accounting for the collateral.
Liabilities incurred by either the secured party or obligor in securities borrowing or resale transactions shall be separately classified.
(P) June 30, 2027; (N) June 30, 2027
105-10-65-7 Liabilities , including accrued interest, incurred by either the secured party or obligor in securities borrowing or resale transactions shall be separately classified. (P) June 30, 2027; (N) June 30, 2027
105-10-65-7 If as of the date of the most recent statement of financial position the aggregate carrying amount of reverse repurchase agreements (securities or other assets purchased under agreements to resell) exceeds 10 percent of total assets, the assets shall be separately classified. This Section does not specify the classification or the terminology to be used to describe the following: - a
- b
Liabilities incurred by either the secured party or obligor in securities borrowing or resale transactions.
Example 1 (see paragraph 860-30-55-1) illustrates possible classifications and terminology. (P) June 30, 2027; (N) June 30, 2027
105-10-65-7 This Section does not specify the classification or the terminology to be used to describe the following: - a
- b
Liabilities, including accrued interest, incurred by either the secured party or obligor in securities borrowing or resale transactions.
Example 1 (see paragraph 860-30-55-1) illustrates possible classifications and terminology. An entity shall disclose all of the following for collateral: - a
If the entity has entered into repurchase agreements or securities lending transactions, it shall disclose its policy for requiring collateral or other security. - b
As of the date of the latest statement of financial position presented, both of the following:
- 1
The carrying amount and classifications of both of the following:
- i
Any assets pledged as collateral that are not reclassified and separately reported in the statement of financial position in accordance with paragraph 860-30-25-5(a) - ii
Associated liabilities.
- 2
Qualitative information about the relationship(s) between those assets and associated liabilities; for example, if assets are restricted solely to satisfy a specific obligation, a description of the nature of restrictions placed on those assets.
- c
If the entity has accepted collateral that it is permitted by contract or custom to sell or repledge, it shall disclose all of the following:
- 1
The fair value as of the date of each statement of financial position presented of that collateral
- 2
The fair value as of the date of each statement of financial position presented of the portion of that collateral that it has sold or repledged
- 3
Information about the sources and uses of that collateral.
For overall guidance on Topic
860's disclosures, see Section
860-10-50.
(P) December 16, 2027; (N) December 16, 2028
270-10-65-1For interim and annual reporting periods, an entity shall disclose all of the following for collateral: - a
If the entity has entered into repurchase agreements or securities lending transactions, it shall disclose its policy for requiring collateral or other security. - b
As of the date of the latest statement of financial position presented, both of the following:
- 1
The carrying amount and classifications of both of the following:
- i
Any assets pledged as collateral that are not reclassified and separately reported in the statement of financial position in accordance with paragraph 860-30-25-5(a) - ii
Associated liabilities.
- 2
Qualitative information about the relationship(s) between those assets and associated liabilities; for example, if assets are restricted solely to satisfy a specific obligation, a description of the nature of restrictions placed on those assets.
- c
If the entity has accepted collateral that it is permitted by contract or custom to sell or repledge, it shall disclose all of the following:
- 1
The fair value as of the date of each statement of financial position presented of that collateral
- 2
The fair value as of the date of each statement of financial position presented of the portion of that collateral that it has sold or repledged
- 3
Information about the sources and uses of that collateral.
For overall guidance on Topic
860's disclosures, see Section
860-10-50.
To provide an understanding of the nature and risks of short-term collateralized financing obtained through repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions, that are accounted for as secured borrowings at the reporting date, an entity shall disclose the following information for each interim and annual period about the collateral pledged and the associated risks to which the transferor continues to be exposed after the transfer:- a
A disaggregation of the gross obligation by the class of collateral pledged. An entity shall determine the appropriate level of disaggregation and classes to be presented on the basis of the nature, characteristics, and risks of the collateral pledged.
- 1
Total borrowings under those agreements shall be reconciled to the amount of the gross liability for repurchase agreements and securities lending transactions disclosed in accordance with paragraph 210-20-50-3(a) before any adjustments for offsetting. Any difference between the amount of the gross obligation disclosed under this paragraph and the amount disclosed in accordance with paragraph 210-20-50-3(a) shall be presented as reconciling item(s).
- b
The remaining contractual maturity of the repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions. An entity shall use judgment to determine an appropriate range of maturity intervals that would convey an understanding of the overall maturity profile of the entity's financing agreements.
- c
A discussion of the potential risks associated with the agreements and related collateral pledged, including obligations arising from a decline in the fair value of the collateral pledged and how those risks are managed.
(P) June 30, 2027; (N) June 30, 2027
105-10-65-7To provide an understanding of the nature and risks of short-term collateralized financing obtained through repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions, that are accounted for as secured borrowings at the reporting date, an entity shall disclose the following information for each interim and annual period about the collateral pledged and the associated risks to which the transferor continues to be exposed after the transfer:- a
A disaggregation of the gross obligation by the class of collateral pledged. An entity shall determine the appropriate level of disaggregation and classes to be presented on the basis of the nature, characteristics, and risks of the collateral pledged.
- 1
Total borrowings under those agreements shall be reconciled to the amount of the gross liability for repurchase agreements and securities lending transactions disclosed in accordance with paragraph 210-20-50-3(a) before any adjustments for offsetting. Any difference between the amount of the gross obligation disclosed under this paragraph and the amount disclosed in accordance with paragraph 210-20-50-3(a) shall be presented as reconciling item(s).
- b
The remaining contractual maturity of the repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions. An entity shall use judgment to determine an appropriate range of maturity intervals that would convey an understanding of the overall maturity profile of the entity's financing agreements.
- c
A discussion of the potential risks associated with the agreements and related collateral pledged, including obligations arising from a decline in the fair value of the collateral pledged and how those risks are managed.
- d
For a public business entity, the weighted-average interest rate of the repurchase liability and the related repurchase liability.
(P) June 30, 2027; (N) June 30, 2027
105-10-65-7If as of the date of the most recent statement of financial position the amount at risk under repurchase agreements or the amount at risk under reverse repurchase agreements with any individual counterparty or group of related counterparties exceeds 10 percent of stockholders’ equity, an entity shall disclose the name(s) of those counterparties or group of related counterparties, the amount at risk with each, and the weighted-average maturity of the repurchase agreements or reverse repurchase agreements with each.(P) June 30, 2027; (N) June 30, 2027
105-10-65-7As used in this Subtopic, the amount at risk under repurchase agreements is the excess of the carrying amount (or market value, if higher than the carrying amount or if there is no carrying amount) of the securities or other assets sold under agreement to repurchase, including accrued interest plus any cash or other assets on deposit to secure the repurchase obligation, over the amount of the repurchase liability (adjusted for accrued interest).(P) June 30, 2027; (N) June 30, 2027
105-10-65-7As used in this Subtopic, the amount at risk under reverse repurchase agreements is the excess of the carrying amount of the reverse repurchase agreements over the market value of assets delivered in accordance with the agreements by the counterparty to an entity (or to a third-party agent that has affirmatively agreed to act on behalf of the entity) and not returned to the counterparty, except in exchange for their approximate market value in a separate transaction.(P) June 30, 2027; (N) June 30, 2027
105-10-65-7If the aggregate carrying amount of reverse repurchase agreements exceeds 10 percent of total assets as described in paragraph 860-30-45-2A, an entity shall disclose whether there are any provisions to ensure that the market value of the underlying assets remains sufficient to protect the entity in the event that the counterparty defaults and, if so, the nature of those provisions. This Example illustrates the guidance in paragraph 860-30-25-8 related to accounting for a securities lending transaction treated as a secured borrowing, in which the securities borrower sells the securities upon receipt and later buys similar securities to return to the securities lender. This Example has the following assumptions:
- a
Transferor's carrying amount and fair value of security loaned: $1,000
- b
- c
Transferor's return from investing cash collateral at a 5 percent annual rate: $5
- d
Transferor's rebate to the securities borrower at a 4 percent annual rate: $4.
For simplicity, the fair value of the security is assumed not to change during the 35-day term of the transaction.
The journal entries for the
transferor and the
transferee are as follows.
![](\"/asc-img/GUID-063420BE-2842-4F17-A07C-D571EBEF15D6-low.gif\")
Journal Entries for the Transferor At inception: Cash \" $1,020 \" Payable under securities loan agreements \" $1,020 \" To record the receipt of cash collateral Securities pledged to creditors \" 1,000 \" Securities \" 1,000 \" To reclassify loaned securities that the secured party has the right to sell or repledge Money market instrument \" 1,020 \" Cash \" 1,020 \" To record investment of cash collateral At conclusion: Cash \" 1,025 \" Interest 5 Money market instrument \" 1,020 \" To record results of investment Securities \" 1,000 \" Securities pledged to creditors \" 1,000 \" To record return of security Payable under securities loan agreements \" 1,020 \" Interest (rebate) 4 Cash \" 1,024 \" To record repayment of cash collateral plus interest
![](\"/asc-img/GUID-586DD8D3-89D1-4A89-9707-EA2236E8EE6E-low.gif\")
Journal Entries for the Transferee At inception: Receivable under securities loan agreements \" $1,020 \" Cash \" $1,020 \" To record transfer of cash collateral Cash \" 1,000 \" Obligation to return borrowed securities \" 1,000 \" To record sale of borrowed securities to a third party and the resulting obligation to return securities that it no longer holds At conclusion: Obligation to return borrowed securities \" 1,000 \" Cash \" 1,000 \" To record the repurchase of securities borrowed Cash \" 1,024 \" Receivable under securities loan agreements \" 1,020 \" Interest revenue (rebate) 4 To record the receipt of cash collateral and rebate interest
This Example illustrates one approach for satisfying the quantitative disclosure requirements in paragraph 860-30-50-7. -
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\"Repurchase Agreements, Securities Lending Transactions, and Repurchase-to-Maturity Transactions Accounted for as Secured Borrowings (Dollars in millions)\" 20XX Remaining Contractual Maturity of the Agreements Overnight and Continuous Up to 30 days 30-90 days Greater Than 90 days Total Repurchase agreements and repurchase-to-maturity transactions U.S. Treasury and agency securities $ XXX $ XXX $ XXX $ XXX $ XXX State and municipal securities XXX XXX XXX XXX XXX Asset-backed securities XXX XXX XXX XXX XXX Corporate securities XXX XXX XXX XXX XXX Equity securities XXX XXX XXX XXX XXX Non-U.S. sovereign debt XXX XXX XXX XXX XXX Loans XXX XXX XXX XXX XXX Other XXX XXX XXX XXX XXX Total XXX XXX XXX XXX XXX 20XX Gross Obligations Overnight Up to 30 Days 30-90 Days Over 90 Days Securities lending transactions U.S. Treasury and agency securities XXX XXX XXX XXX XXX State and municipal securities XXX XXX XXX XXX XXX Corporate securities XXX XXX XXX XXX XXX Equity securities XXX XXX XXX XXX XXX Non-U.S. sovereign debt XXX XXX XXX XXX XXX Loans XXX XXX XXX XXX XXX Other XXX XXX XXX XXX XXX Total XXX XXX XXX XXX XXX Total borrowings $ XXX $ XXX $ XXX $ XXX $ XXX Gross amount of recognized liabilities for repurchase agreements and securities lending in footnote X $ XXX Amounts related to agreements not included in offsetting disclosure in footnote X $ XXX