Accounting For Securitization Of Receivables Under

990 WordsMar 22, 20174 Pages
P1. Discuss accounting for securitization of receivables under 1. US GAAP There are uncertainties in whether a receivable is sold or being used as a collateral for a loan. Thus, FASB has provided guidelines to distinguish between the two. FASB ASC 860-10-40-3 states that a financial asset should be considered sold and therefore should be derecognized if it is transferred and control is surrendered. Moreover, when control over the receivables is not surrendered, the transaction should be treated as a collateralized borrowing. FASB ASC 860-10-40 on the subject of conditions for a sale of financial assets states that a financial asset should be considered sold if it is transferred and control is surrendered. Control is deemed to be…show more content…
With a QSPE, the transferor keeps debt and assets of the Securitization Entity off its balance sheet. The transferor receives cash, removes receivables, and does not record any of the Securitization Entities’ debt. Moreover, the amended SFAS 140 forces SE to be treated as part of the transferor if the transferor directs the SE’s activities and participates in the SE’s gains and losses. The transferor must treat securitization as a collateralized borrowing instead of a transfer/ sale and keep the receivables in its balance sheet recoding the SE’s debt, and not recognizing any gains on the receivables transfer. 3. Make recommendations To find who is bearing the risks of receivables ownership, an analyst should carefully examine the details of the securitization or factoring transactions. Moreover, if the transactions are considered borrowed where the lender does not directly bear the risk of owning the receivable/security, then the ownership risks should be retained by the company. Essentially, companies who are facing different economic realities may choose similar accounting treatment being that it will satisfy the requirement under GAAP P2. Discuss accounting for troubled debts under 1. US GAAP Our textbook states that the Authoritative accounting literature gives this definition: A restructuring of debt constitutes a troubled debt restructuring… if the creditor for economic or legal

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