[Federal Register Volume 59, Number 96 (Thursday, May 19, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-12174]


[[Page Unknown]]

[Federal Register: May 19, 1994]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 211, 231, and 241

[Release Nos. 33-7060; 34-34061; FR 28A]

 

Amendment of Interpretation Regarding Substantive Repossession of 
Collateral

AGENCY: Securites and Exchange Commission.

ACTION: Interpretive release.

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SUMMARY: This interpretive release amends the interpretive guidance 
contained in Financial Reporting Release No. 28 (FR 28) that addresses 
the accounting for substantive repossessions of collateral. This 
release conforms the interpretive guidance in FR 28 to the requirements 
of Statement of Financial Accounting Standards No. 114, ``Accounting by 
Creditors for Impairment of a Loan'' (SFAS 114), which was issued by 
the Financial Accounting Standards Board (FASB) in May 1993.

EFFECTIVE DATE: May 19, 1994.

FOR FURTHER INFORMATION CONTACT:
John Riley, Stephen M. Swad, or Jeffery A. Swormstedt (202-942-4400), 
Office of the Chief Accountant, or Teresa E. Iannaconi (202-272-2553), 
Division of Corporation Finance, Securities and Exchange Commission, 
450 5th Street, NW., Washington, DC 20549.

SUPPLEMENTARY INFORMATION:

I. Amendment of Interpretation Regarding Substantive Repossession of 
Collateral

    In 1977, The FASB issued Statement of Financial Accounting 
Standards No. 15, ``Accounting by Debtors and Creditors for Troubled 
Debt Restructurings'' (SFAS 15), which addressed, among other things, 
the accounting for substantive repossessions of collateral for 
restructured loans. Paragraph 34 of SFAS 15 required a troubled debt 
restructuring that is in substance a repossession or foreclosure by the 
creditor to be accounted for by the creditor by recognizing the fair 
value of the collateral as an asset, even if that collateral is not 
formally repossessed. However, SFAS 15 did not identify any criteria to 
determine when a loan restructuring was considered a substantive 
repossession of collateral.
    The Commission found that, under SFAS 15, there was inconsistency 
in practice concerning the accounting for substantive repossessions of 
collateral. So, in 1986, to ensure more consistent application of 
substantive repossession accounting, the Commission issued FR 28, which 
concludes, among other things, that a loan should be accounted for as 
being an in-substance repossession of collateral if certain criteria 
are met.\1\ These criteria focus on whether the primary risks and 
rewards of collateral ownership have passed from the debtor to the 
creditor.
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    \1\The portion of Financial Reporting Release No. 28 that 
addresses the accounting for substantive repossessions of collateral 
is referred to in the Codification of Financial Reporting Policies 
as Sec. 401.09.c.
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    In 1993, the FASB issued SFAS 114, which addresses, among other 
things, the accounting for substantive repossession of collateral. SFAS 
114 amends SFAS 15 to clarify that substantive repossession accounting 
applies in the circumstances in which the debtor surrenders the 
collateral to the creditor and the creditor receives physical 
possession of the debtor's assets (the collateral).\2\ Consequently, 
the accounting guidance relating to the accounting for substantive 
repossessions of collateral in FR 28 is not consistent with the account 
requirements for substantive repossession accounting in SFAS 114.
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    \2\See SFAS 114, paragraphs 22d, 70, and 71.
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    Because SFAS 114 clarifies the accounting literature that addresses 
the accounting for substantive repossessions of collateral, the portion 
of FR 28 that addresses substantive repossession accounting no longer 
is necessary once a registrant adopts SFAS 114.\3\ Accordingly, 
registrants that have adopted SFAS 114 should not apply the portion of 
FR 28 that addresses the accounting for substantive repossessions of 
collateral. Registrants that have not adopted SFAS 114 should continue 
to apply all portions of FR 28, including the portion that addresses 
the accounting for substantive repossessions of collateral.
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    \3\SFAS 114 applies to financial statements for fiscal years 
beginning after December 15, 1994. Earlier application is 
encouraged.
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II. Codification Update

    The ``Codification of Financial Reporting Policies'' announced in 
Financial Reporting Release No. 1 (April 15, 1982 (47 FR 21028) is 
updated to:
    1. Add a new Sec. 401.09.c.1, entitled ``Amendment of 
Interpretation Regarding Substantive Repossession of Collateral,'' 
consisting of the last two paragraphs of section I of this release.
    The Codification is a separate publication of the Commission. It 
will not be published in the Federal Register Code of Federal 
Regulations System.

List of Subjects in 17 CFR Parts 211, 231, and 241

    Securities.

Amendment of the Code of Federal Regulations

    For the reasons set out in the preamble, title 17 chapter II of the 
Code of Federal Regulations is amended as set forth below:

PART 211-INTERPRETATIONS RELATING TO FINANCIAL REPORTING MATTERS

    1. Part 211, subpart A, is amended by adding Release No. FR-28A and 
the release date of May 12, 1994, to the list of interpretive releases.

PART 231-INTERPRETATIVE RELEASES RELATING TO THE SECURITIES ACT OF 
1933 AND GENERAL RULES AND REGULATIONS THEREUNDER

    2. Part 231 is amended by adding Release No. 33-7060 and the 
release date of May 12, 1994, to the list of interpretive releases.

PART 241-INTERPRETATIVE RELEASES RELATING TO THE SECURITIES 
EXCHANGE ACT OF 1934 AND GENERAL RULES AND REGULATIONS THEREUNDER

    3. Part 241 is amended by adding Release No. 34-34061 and the 
release date of May 12, 1994, to the list of interpretive releases.

    Dated: May 12, 1994.

    By the Commission.

[FR Doc. 94-12174 Filed 5-18-94; 8:45 am]
BILLING CODE 8010-01-M