Repurchase Agreement: Financing or Sale?
If the transferor keeps too much control or effectively must take the asset back, the economics may look more like financing.
Sale logic
A true sale requires the transferor to surrender control under the applicable derecognition guidance.
Financing logic
If the arrangement leaves the transferor with effective control through a repurchase obligation or similar mechanism, financing treatment may be appropriate.
Substance over label
A contract can call the transaction a sale even when the economics are closer to secured borrowing.
Exam strategy
Ignore the title at first and ask whether control was actually surrendered.
The takeaway
Repurchase arrangements are classified from control and economic substance, not from the label used in the contract.
Related Summit resources
FAQ
Can a labeled sale be accounted for as financing?
Yes.
What is the key accounting question?
Whether control was surrendered.
Why does a repurchase obligation matter?
It can indicate retained effective control.