Companies that transfer assets on or off the balance sheet using repurchase agreements should take a close look at their accounting practices in light of a growing probe into how Lehman Brothers used “repo agreements”—with disastrous results.
The Securities and Exchange Commission published one of its occasional “Dear CFO” letters last week, warning that it has launched an inquiry into how companies (primarily banks and insurance companies) treat asset transfers involving financing or some obligation to repurchase the assets. The SEC is looking for where companies have treated transfers as sales, which reduces leverage by removing them from the balance sheet, ...