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Ey Ias 39 Repos

Ey Ias 39 Repos

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Published by: zerohedge on Mar 14, 2010
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Post-Interim Event
Executive Event –Financial Statement Audits –1UYJX41
©2004 Ernst & Young LLP. All rights reserved.
©2005 Ernst & Young LLP. All rights reserved.This material is proprietary, confidential, and for internal useonly.Unauthorized distribution or reproduction of this program or itscontents violates firm policy and copyright laws.
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Repurchase Agreements (Repo)Repurchase Agreements (Repo)
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Repo Definition
Paragraph 10 of International Accounting Standard 39 “FinancialInstruments: Recognition and Measurement”defines
“repurchaseagreement (Repo) as an agreement to transfer a financial asset to another  party in exchange for cash or other consideration and a concurrent obligation to reacquire the financial asset at a future date foran amount equal to the cash or other consideration exchanged plus interest”.
 
Post-Interim Event
Executive Event –Financial Statement Audits –1UYJX42
©2004 Ernst & Young LLP. All rights reserved.
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Classic Repo
First LegSells 100 worth of bondPays 95 cash for bondSecond LegPays 95 cash plus interestSells 100 worth of stock 
BANK ABANK BBANK ABANK B
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Margin
An initial margin is given to the supplier of cash in thetransaction. The market value of the collateral is reduced (or given a “haircut”) by the amount of margin when determiningthe value of cash lent outSize of the margin depends upon the credit quality of thecounterparty, term of the repo, duration and quality of thecollateral
 
Post-Interim Event
Executive Event –Financial Statement Audits –1UYJX43
©2004 Ernst & Young LLP. All rights reserved.
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If the financial asset is sold under a repurchase agreement, itcannot be derecognised from the books as the transferor retains substantially all the risks and rewards of ownership.
IFRS Implications (IAS 39, AG 51 (a))
On-balance sheet: An accounting entry appears as securedloan and not as a “sell”transaction. Bonds given as collateralremain on the balance sheet; corresponding liability is repocash (opposite for the buyer)Profit & loss account: Repo interest is treated as payment of interest on accrual basis.
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IFRS Implications (IAS 39, AG 51 (a))
In the books of the borrower, the bonds will be shown as anasset and the cash received from the lender would be shownunder the liability side as a “Borrowing under repurchaseagreement”

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