Transfers and Servicing of Financial Assets (Portfolio 5184)

Description

Bloomberg Tax and Accounting Portfolio No. 5184, Transfers and Servicing of Financial Assets, explains how to characterize and treat transfers of financial assets and how to account for servicing assets and servicing liabilities.

Both U.S. GAAP and IFRS have complex rules on whether a transfer of a financial asset is actually a sale or whether it in essence is a secured borrowing. This issue arises because often the transferrer of a financial asset will transfer only a portion of a financial asset or will continue to remain involved even after transferring a financial asset in its entirety. There are strict rules on when a transferor can treat the partial transfer of a financial asset as a sale. There are also numerous rules on what type of continuing involvement a transferor may have with a transferred financial asset and still have the transfer qualify as a sale. This Portfolio explains the rules for characterizing transfers as either sales or secured borrowings.

If a transaction is a sale, the transferor derecognizes the asset and reports any resulting gain or loss. Special rules exist on computing the gain or loss when the transferor transfers only a portion of a financial asset. There also are special rules for recognizing a transfer that is characterized as a secured borrowing. This Portfolio explains the rules on accounting for both sale and secured borrowing transactions.

Lastly, this Portfolio explains how to account for servicing rights. Often, when selling a financial asset that is a debt obligation, the transferor will retain the rights to service the asset and will receive servicing fees in return. The transferor must determine whether the servicing rights constitute a servicing asset (because the fees will more than adequately compensate it for servicing the financial asset) or a servicing liability (because the fees will not adequately compensate it).

This Portfolio may be cited as Bloomberg Tax and Accounting Portfolio No. 5184, Rood, Transfers and Servicing of Financial Assets (Accounting Policy and Practice Series).

Table of Contents

I. Introduction
II. Privileges and Protections
III. Potential Privileges Available in the Life of a Tax Matter
IV. Special Considerations
V. State Privileges