Financial BulletinRegulations and developments affecting the financial services industry March 24, 2011Proposed rules on of...
Proposed rules on offsetting, revenue from contracts with customers andharmonization issues (continued)Collateral principl...
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Proposed rules on offsetting, revenue from contracts with customers and harmonization issues

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Proposed rules on offsetting, revenue from contracts with customers and harmonization issues

  1. 1. Financial BulletinRegulations and developments affecting the financial services industry March 24, 2011Proposed rules on offsetting, revenuefrom contracts with customers andharmonization issuesBroker-dealers face a number of Previously, entities — banks and Revenue from Contracts withpotential rule changes in the coming broker-dealers in particular — were Customersmonths. On Jan. 28, 2011, the Financial provided exceptions to the offsetting The FASB is also proposing an ASU thatAccounting Standards Board (FASB) principles for conditional transactions, will combine existing revenue recognitionissued a Proposed Accounting Standards including unsettled, regular way securities principles titled Revenue from ContractsUpdate (ASU), Balance Sheet Offsetting, transactions, repurchase agreements and with Customers. Although there has beento correspond with the International derivatives contracts. Affected financial wide interest in the standard, benefitsAccounting Standards Board (IASB) entities should assess the impact of provided for the use of commissionExposure Draft, Offsetting Financial these potential changes. For example, dollars may be subject to furtherAssets and Liabilities. The proposals transactions that are presently netted on a examination in light of the current growthpertain to the requirement to permit conditional basis, including involvement of commission-sharing arrangementsoffsetting only in an unconditional with clearing organizations and and the SEC’s widening interpretation ofmanner. The comment period ends depositories, may be subject to reporting Rule 28(e). Broker-dealers and investmentApril 28, 2011. on a gross basis. Some broker-dealers also advisers should be alert to FASB expect that the implementation may result interpretations that could have a bearing in the doubling of their current reported on their current accounting treatment. footings. Interaction with the implementation of the netting ASU may result in a revision in existing accounting interpretation. In addition, the impact on FINRA’s gross income assessment should be considered and relief obtained where necessary. continued>
  2. 2. Proposed rules on offsetting, revenue from contracts with customers andharmonization issues (continued)Collateral principle in transfers In addition, under current GAAPBroker-dealers should be aware of the applied by broker-dealers, non-regularremoval of the criterion that adequate way securities transactions are notcash or collateral be obtained to purchase recorded until the settlement date. Sincereplacement securities when determining the International Accounting Standardswhether a transfer is a purchase/sale or Board (IASB) has been reluctant to issuefinancing. The absence of this criterion industry-specific guidelines under IFRS,may result in an increase in classifications broker-dealers should be alert to whetheras financings. this interpretation will be permitted when the harmonization occurs.Impact of IFRS on broker-dealers In their Exposure Draft titled Leases, About the newsletterInternational Financial Reporting the FASB and IASB have agreed to Financial Bulletin is published by Grant Thornton LLP. The people in theStandards (IFRS) will affect certain eliminate off-balance sheet accounting independent firms of Grant Thorntonaccounting principles for broker-dealers. for operating leases. Although the International Ltd provide personalized attention and the highest quality service toAlthough netting is optional under rules are far from final, the most public and private clients in more than 100U.S. Generally Accepted Accounting likely outcome would have a dramatic countries. Grant Thornton LLP is the U.S. member firm of Grant Thornton InternationalPrinciples (GAAP), it is mandatory under impact on the financial statements of Ltd, one of the six global audit, tax and advisory organizations. Grant ThorntonIFRS. Therefore, the consequences of businesses that lease assets. The impact on International Ltd and its member firms are nottheir harmonization for netting will be regulatory computations, including the a worldwide partnership, as each member firm is a separate and distinct legal entity.dramatic. As seen under Revenue from determination of net capital and aggregateContracts with Customers, the potential indebtedness, will be more complex Content in this publication is not intended to answer specific questions or suggesteffects on other standards need to be under the proposed standards and may suitability of action in a particular case.considered. require relief from the regulators. • For additional information on the issues discussed, consult a Grant Thornton client service partner. Contact information Jack Katz National Managing Partner Financial Services Grant Thornton LLP T 212.542.9660 E jack.katz@us.gt.com Nichole Jordan National Banking and Securities Industry Leader Grant Thornton LLP T 212.624.5310 E nichole.jordan@us.gt.com Richard Flowers Broker-dealer Industry Senior Adviser Partner Grant Thornton LLP T 212.624.5340 E richard.flowers@us.gt.com © 2011 Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd www.GrantThornton.com2 Financial Bulletin – March 24, 2011

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