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April 25, 2010


Independent Accountant

I've read about the Repo 105 transactions. Their accounting seems to me to be straightforward. The Repo 105s were secured borrowings based on a concept apparently unknown to Lehman and E&Y. It's called "substance over form".


Your proposal looks a lot like the approach the IASB is currently pursuring for its derecognition project.

I agree that this model is very principal-based where all the assets and liabilities should be recognized. However, there are lots of concerns about this approach, for example, yo ucan recognize gains or losses by simply transfering. In addition, it seems that Repo doesn't fit easily in this IASB model.

On the other hand, the current FAS 166 is too clumsy to be a good accounting rule. for instance, it often requires attorney opinion to justify sales accounting. What kind of accounting principal is that? As in the Leman case, they simply hired some lawyer in UK to do the work. FASB definitely should and could do more to come up with better rules.

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