How should a major financial institution implement an intricate new accounting standard? That's the kind of question that faces CPA Diane M. Butterfield, comanager of corporate accounting policies at The Chase Manhattan Bank in New York, on a regular basis. Her job is to provide financial accounting and reporting advice, primarily for the bank's global wholesale worldwide operations, which include investment banking, loan syndication, trading, venture capital, mutual funds and private banking. To develop accounting policies for her portion of the bank's businesses, she begins by keeping a close watch on the standards under consideration at the Financial Accounting Standards Board and its emerging issues task force and at the American Institute of CPAs, as well as on the positions of the Securities and Exchange Commission.
FASB STATEMENT 125
In the last year, she focused much of her attention on the bank's implementation of FASB Statement no. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. The statement, which clarifies and in some cases changes the distinctions between secured borrowings and sales, is so challenging that the implementation appendix, at 30 pages, is twice the size of the statement itself.
Some of the main issues for Chase involved repurchase agreements (repos) and reverse repurchase agreements, which generally are short-lived borrowings commonly used by banks in their financing arrangements. Central to these transactions is the promise to repurchase an asset by a certain date, which raises accounting issues surrounding whether they are secured borrowings or sales--issues that Statement no. 125 attempts to resolve. The bank's trading partners in these transactions are generally large investment houses, such as Goldman Sachs and Salomon Brothers. Butterfield, a member of the AICPA banking and savings institutions committee, has been attempting to ensure that the contracts the bank enters into with other financial institutions when it uses these agreements satisfy the new standards.
With most projects, whether they involve the implementation of a complex standard such as Statement no. 125 or the launch of a new product, Butterfield must consider whether the existing computer systems can handle the associated details--and how they will do it. When new disclosures are required, for example, "I work with the systems people and with our corporate reporting people to decide whether...