Edita Mercado Su Jane Acct 301 FASB Codification Assignment 3/13/2013 Professional Research: FASB Codification A. Identify relevant Codification section that addresses transfers of receivables. The relevant codification section that addresses transfers of receivables is the following: FASB ASC 860-10-05-15. C. Provide definitions for the following: 1) Transfer: The conveyance of a noncash financial asset by and to someone other than the issuer of that financial asset. A transfer includes the following: selling a receivable, putting a receivable into securitization trust, and posting a receivable as collateral.
A transfer excludes the following: the origination of the receivable, settlement of a receivable, and the restructuring of a receivable into a security in a troubled debt restructuring. (FASB ASC 860-10-20) 2) Recourse: The right of a transferee of receivables to receive payment from the transferor of those receivables for any of the following: failure of debtors to pay when due, the effects of prepayments and adjustments resulting from defects in eligibility of the transferred receivables. FASB ASC 860-10-20) 3) Collateral: “Personal or real property in which a security interest has been given” (FASB ASC 860-10-20). 4) Transferee: “An entity that receives a financial asset, an interest in a financial asset, or a group of financial assets from a transferor” (FASB ASC 860-10-20). 5) Transferor: “An entity that transfers a financial asset, an interest in a financial asset, or a group of financial assets that it controls to another entity” (FASB ASC 860-10-20). 6) Factoring: Factoring arrangements are a means of discounting accounts receivable on nonrecourse, notification basis.
Accounts receivables in their entireties are sold outright, usually to a transferee (the factor) that assumes the full risk of a collection, without recourse to the transferor in the event of loss. Debtors are directed to send payments to the transferee. (FASB ASC 860-10-05-14) 7) Transfer of Receivables with Recourse: In a transferor of an entire receivable a group of entire receivables, or a portion of an entire receivable with recourse, the transferor provides the transferee with full or limited recourse.
The transferor is obligated to under the terms of the recourse provision to make payments to the transferee or to repurchase receivables sold under certain circumstances, typically for defaults up to a specified percentage. (FASB ASC 860-10-05-15) 8) Securitization: “The process by which financial assets are transformed into securities” (FASB ASC 860-10-20). D. Provide other examples (besides recourse and collateral) that qualify as continuing involvement.
Other examples that qualify as continuing involvement, other than recourse and collateral, are servicing and guarantee arrangements, agreements to purchase or redeem transferred financial assets, options written or held, and arrangements to provide financial support. Beneficial interest coming from the transferor in the transferred financial assets and derivative interest that are entered into contemporaneously, and either with or without contemplation of the transfer are other examples that qualify as continuing involvement. (FASB ASC 860-10-55-79B)
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