Abstract The article presents the response of the Financial Accounting Standards Committee of the American Accounting Association to Financial Accounting Services Board Exposure Draft (ED) related to accounting for transfers and servicing of financial assets and extinguishment of liabilities. According to the Committee, this ED introduces a general framework for dealing with a broad class of transactions involving financial instruments. The objectives in accounting for transfers are to recognize all assets controlled and all liabilities incurred and de-recognize all assets where control has been surrendered and all liabilities where the obligations have been extinguished. The proposed standard requires decomposition of the transaction into components that are transferred according to control provisions and those components that are part of the transferor's continuing involvement. The Committee reiterates its support for a components approach for recognition and measurement of compound financial instruments. Subject to resolution of identification and measurability issues, the Committee considers this framework appropriate for dealing with transfers of financial instruments.
Warfield et al. (Sun,) studied this question.