In a repurchase agreement, what does the seller retain?

In a repurchase agreement, the seller retains the risks and rewards of the sold goods. This arrangement typically involves a seller transferring an asset to a buyer with a simultaneous agreement to repurchase the same asset at a later date and at a predetermined price. While the asset may technically change hands during the period of the agreement, the seller remains liable for any potential losses or gains associated with the asset.

Retaining risks and rewards indicates that the seller still has a financial interest in the asset, meaning they benefit from any appreciation in value and are also responsible for any depreciation. This is a key characteristic of such agreements, as the seller's continued exposure to the economic realities of ownership suggests that the transfer does not obviously constitute a complete sale. Consequently, the seller has not effectively divested themselves of the asset's economic implications, which aligns with the underlying principles of recognition and derecognition in financial reporting.