1. Financial Bulletin
Regulations and developments affecting the financial services industry March 24, 2011
Proposed rules on offsetting, revenue
from contracts with customers and
harmonization issues
Broker-dealers face a number of Previously, entities — banks and Revenue from Contracts with
potential rule changes in the coming broker-dealers in particular — were Customers
months. On Jan. 28, 2011, the Financial provided exceptions to the offsetting The FASB is also proposing an ASU that
Accounting Standards Board (FASB) principles for conditional transactions, will combine existing revenue recognition
issued a Proposed Accounting Standards including unsettled, regular way securities principles titled Revenue from Contracts
Update (ASU), Balance Sheet Offsetting, transactions, repurchase agreements and with Customers. Although there has been
to correspond with the International derivatives contracts. Affected financial wide interest in the standard, benefits
Accounting Standards Board (IASB) entities should assess the impact of provided for the use of commission
Exposure Draft, Offsetting Financial these potential changes. For example, dollars may be subject to further
Assets and Liabilities. The proposals transactions that are presently netted on a examination in light of the current growth
pertain to the requirement to permit conditional basis, including involvement of commission-sharing arrangements
offsetting only in an unconditional with clearing organizations and and the SEC’s widening interpretation of
manner. The comment period ends depositories, may be subject to reporting Rule 28(e). Broker-dealers and investment
April 28, 2011. on a gross basis. Some broker-dealers also advisers should be alert to FASB
expect that the implementation may result interpretations that could have a bearing
in the doubling of their current reported on their current accounting treatment.
footings. Interaction with the implementation of
the netting ASU may result in a revision
in existing accounting interpretation. In
addition, the impact on FINRA’s gross
income assessment should be considered
and relief obtained where necessary.
continued>

2. Proposed rules on offsetting, revenue from contracts with customers and
harmonization issues (continued)
Collateral principle in transfers In addition, under current GAAP
Broker-dealers should be aware of the applied by broker-dealers, non-regular
removal of the criterion that adequate way securities transactions are not
cash or collateral be obtained to purchase recorded until the settlement date. Since
replacement securities when determining the International Accounting Standards
whether a transfer is a purchase/sale or Board (IASB) has been reluctant to issue
financing. The absence of this criterion industry-specific guidelines under IFRS,
may result in an increase in classifications broker-dealers should be alert to whether
as financings. this interpretation will be permitted when
the harmonization occurs.
Impact of IFRS on broker-dealers In their Exposure Draft titled Leases, About the newsletter
International Financial Reporting the FASB and IASB have agreed to Financial Bulletin is published by
Grant Thornton LLP. The people in the
Standards (IFRS) will affect certain eliminate off-balance sheet accounting independent firms of Grant Thornton
accounting principles for broker-dealers. for operating leases. Although the International Ltd provide personalized
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Although netting is optional under rules are far from final, the most public and private clients in more than 100
U.S. Generally Accepted Accounting likely outcome would have a dramatic countries. Grant Thornton LLP is the U.S.
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advisory organizations. Grant Thornton
IFRS. Therefore, the consequences of businesses that lease assets. The impact on
International Ltd and its member firms are not
their harmonization for netting will be regulatory computations, including the a worldwide partnership, as each member
firm is a separate and distinct legal entity.
dramatic. As seen under Revenue from determination of net capital and aggregate
Contracts with Customers, the potential indebtedness, will be more complex Content in this publication is not intended
to answer specific questions or suggest
effects on other standards need to be under the proposed standards and may suitability of action in a particular case.
considered. require relief from the regulators. • For additional information on the issues
discussed, consult a Grant Thornton client
service partner.
Contact information
Jack Katz
National Managing Partner
Financial Services
Grant Thornton LLP
T 212.542.9660
E jack.katz@us.gt.com
Nichole Jordan
National Banking and Securities
Industry Leader
Grant Thornton LLP
T 212.624.5310
E nichole.jordan@us.gt.com
Richard Flowers
Broker-dealer Industry Senior Adviser
Partner
Grant Thornton LLP
T 212.624.5340
E richard.flowers@us.gt.com
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2 Financial Bulletin – March 24, 2011