Accounting Essay

Accounts receivables in their entireties are sold outright, usually to a transferee (the factor) that assumes the full risk of a collection, without recourse to the transferor in the event of loss. Debtors are directed to send payments to the transferee. (FASB ASC 860-10-05-14) 7) Transfer of Receivables with Recourse: In a transferor of an entire receivable a group of entire receivables, or a portion of an entire receivable with recourse, the transferor provides the transferee with full or limited recourse.

The transferor is obligated to under the terms of the recourse provision to make payments to the transferee or to repurchase receivables sold under certain circumstances, typically for defaults up to a specified percentage. (FASB ASC 860-10-05-15) 8) Securitization: “The process by which financial assets are transformed into securities”Provide other examples (besides recourse and collateral) that qualify as continuing involvement.

Other examples that qualify as continuing involvement, other than recourse and collateral, are servicing and guarantee arrangements, agreements to purchase or redeem transferred financial assets, options written or held, and arrangements to provide financial support.

Beneficial interest coming from the transferor in the transferred financial assets and derivative interest that are entered into contemporaneously, and either with or without contemplation of the transfer are other examples that qualify as continuing involvement.