The Financial Accounting Standards Board is taking up a new project to issue new rules on the accounting and disclosure of repurchase agreements and related transactions.

FASB Chairman Leslie Seidman said the board needs to revisit the accounting to address application issues and changes in the market to assure investors are getting useful information about transactions. The board will reexamine the guidance currently found in Accounting Standards Codification Topic 860, Transfers and Servicing, around the assessment of effective control, meaning when an entity has control over an asset that is subject to transfer. The objective will be to differentiate between transactions that are secured borrowings and those that are sales of transferred financial assets with forward purchase agreements.

When the Lehman Brothers bankruptcy proceedings revealed abuses around existing repurchase agreement accounting, FASB developed and issued Accounting Standards Update 2011-3 Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements to more clearly explain the criteria for repurchase agreements. Lehman Brothers is accused of pushing the rules for repurchase agreements to show short-term borrowing arrangements as asset sales around key financial period reporting dates to shuttle as much as $50 billion in debt off the balance sheet.

“This is a difficult issue in part because of the unique nature of repurchase agreements in the sense that there are shared rights and obligations between parties over time,” Seidman said during a FASB meeting to announce the new project. “There are real questions about what the appropriate accounting them should be. Over time practices have changes with respect to the types of securities involved in these arrangements and other things, such as the type and amount of collateral being posted, that warrant a fresh look at this time."