Americas

Accounting of repurchase agreements comes under scanner

by R. Venkata Subramani

The Securities and Exchange Commission has started an inquiry into about two dozen financial companies to determine whether they followed accounting practices similar to those recently disclosed in an investigation of Lehman Brothers.

Repurchase agreements, which are a common way that investment banks provide funds for trading activities. The commission wants to know whether other Wall Street players used tactics like those that Lehman used to mask their debt levels from investors.

This inquiry is part of its duties to review the financial filings of public companies and any irregularities will be sent to its enforcement wing to eventually bring charges on such errant companies.

As per the news item appearing in New York Times, “Since Lehman was accused of using a transaction known as Repo 105 in 2008 to hide about $50 billion in debt, analysts have said there should be a widespread inquiry of accounting on wall Street before the financial crisis.

The commission is focusing on all sorts of repurchase agreements, not just those Lehman used. The commission asked the companies if they had classified the transactions, which are often considered loans, as sales. The commission also asked whether those transactions affected data provided to investors, analysts, regulators or ratings agencies.”

See the full report here: http://www.nytimes.com/2010/03/30/business/30sec.html

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No decision taken about the timing of a possible conversion to IFRS

by R. Venkata Subramani

While the SEC approved a statement supporting the adoption of global accounting standards for U.S. companies, the Chairman Mary Schapiro cautioned that, “Incorporating International Financial Reporting Standards (IFRS) into our financial reporting system would involve a significant undertaking. We must carefully consider and deliberate whether such a change is in the best interest of U.S. investors and markets.

“The Commission also voted to approve a Work Plan developed by SEC staff that would gather information to aid the Commission as it evaluates the impact that the use of IFRS by U.S. companies would have on our securities market,” Schapiro said. The Work Plan will be completed in 2011, the target date set by the 2008 Proposed Roadmap.

Schapiro said, however, that no decision had been made about the timing of a possible conversion to IFRS. “We must still determine what this means for U.S. companies and markets; should we incorporate IFRS into our reporting system and, if so, when and how?

Source: http://www.accountingweb.com/topic/cfo/sec-approves-work-plan-assess-us-adoption-global-accounting-standards

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