• Discussed with SAC: July 2001
• Discussed at December 2007 IASB Meeting
• Discussed at July 2008 IASB Meeting – added to active agenda
• Discussed at October 2008 IASB Meeting
• Discussed at November 2008 IASB Meeting
• Discussed at December 2008 IASB Meeting
• Discussed at January 2009 IASB Meeting
• Discussed at February 2009 IASB Meeting
• Discussed at March 2009 IASB-FASB Joint Meeting
• Exposure Draft ED/2009/3 published 31 March 2009 (Click for Details)
  Comment deadline on the exposure draft is 31 July 2009
• Discussed at September 2009 IASB Meeting
• Discussed at October 2009 IASB Meeting
• Discussed at December 2009 IASB Meeting
• Discussed at January 2010 IASB Meeting
• Discussed at February 2010 IASB Meeting

Timetable

• Click for IASB Project Timetable

Background

Derecognition refers to the removal of an asset or liability (or a portion thereof) from an entity's balance sheet. Derecognition questions can arise with respect to all types of assets and liabilities. This project focuses on financial instruments. Questions regarding derecognition of assets and liabilities often arise in the context of certain special purpose entities and whether those entities should be included in a set of consolidated financial statements.

IASB is considering both a comprehensive project on derecognition or all types of assets and liabilities and also a separate, narrower scope project that would explore the need to revise guidance in IAS 39 in the area of derecognition of financial instruments. This limited scope project would address questions that have arisen with regard to the application of conflicting aspects of IAS 39's guidance on derecognition. The project would result in an amendment to IAS 39 possibly through issuance of a separate standard on derecognition that supersedes that section of IAS 39.

Discussion at the December 2007 IASB Meeting

The objective of this session was to obtain the views of the Board as to when financial assets and financial liabilities should be presented linked in the financial statements (referred to as 'linked presentation'). Any views of the Boards will be included in the staff report on derecognition, which is the next milestone in the research project on derecognition. This is an outcome of the papers presented at the Joint IASB-FASB Board Meeting in October 2007.

Staff presented two possible views on linked presentation – the joint presentation of financial assets and financial liabilities in primary financial statements (but still presenting them separately, that is, no netting).

The Board was presented a paper on two possible views when linked presentation is triggered:

View 1 - an entity shall apply linked presentation in the financial statements when either:

(a) An entity's obligation to a financial liability is satisfied solely by economic benefits generated by a financial asset. In this case the total liability is linked to the asset.

(b) An entity is obliged to pay a financial liability all economic benefits generated by a financial asset. In this case the total asset is linked to the liability.

(c) If a financial liability is satisfied solely by economic benefits generated by a financial asset (thus satisfying condition a.), and the entity is also obliged to pay all economic benefits on a financial asset to settle a financial liability (and also satisfies condition b.), then the financial liability is linked to the financial asset in accordance with condition a.

View 2 - an entity shall apply linked presentation in the financial statements when either:

(a) An entity is obliged at the reporting date to settle a financial liability using economic benefits generated by a financial asset. In this case it is the specific obligation to settle the liability using economic benefits generated by the financial asset that is linked to the financial asset, and other obligations of the entity to the debt holder will not qualify for linked presentation.

(b) An entity has a right at the reporting date to receive economic benefits on a financial asset equal to some or all of the economic resources to be sacrificed if a financial liability is settled. In this case it is the specific right to receive economic benefits equal to some or all of the economic resources to be sacrificed if the financial liability is settled that is linked to the financial liability, and other rights of the entity to receive economic benefits will not qualify for linked presentation.

These views do not only define when linked presentation is required but also if the liability is linked to the asset or vice versa.

The staff presented to the Board a set of scenarios to explain the similarities and especially the differences between both approaches, which can be summarized as follow (the complete case study can be downloaded as Agenda Paper 9B from the IASB's website):

Only the first three scenarios were discussed. The Board had a lengthy discussion on the views and their application to the scenarios.

Some Board members expressed concerns that these scenarios might not be realistic. One Board member questioned whether this issue could better be dealt with in the project on financial statement presentation to avoid proposing principles that are not in line with what has already been agreed on. The staff noted that all discussions are currently at staff paper level.

As the staff talked the Board through the scenarios, some Board members had problems in arriving at the solutions the staff presented when applying the principles set out in views 1 and 2. Those Board members also could not extract the rationale behind the principles. They suggested that if some Board members cannot understand the principle then it is not a good idea to further elaborate on linkage.

On inquiry, the staff stated that the paper is based on the assumption that all financial items concerned are measured at fair value and that even if the cash flows of the linked items are identical in amount and timing there might be a gap due to the different risk premiums.

Also Board members could not see the rationale behind the analysis in scenario 3 that in view 1 the asset is linked to the liability while according to view 2 the liability is linked to the asset.

At one point in the discussion, one Board member raised the question if the staff could come back and make clearer how linked presentation enhances financial reporting, that would be an improvement in the staff paper. Others doubted that it would be desirable to add linkage in any outcome of the research project on derecognition. Another Board member suggested while linked presentation might not be desirable in the primary financial statements, users may find such information useful if it is disclosed in the notes. Board members also noted that linked presentation might mitigate some of the burden resulting from setting a high hurdle for derecognition.

No decisions were made.

Discussion at the July 2008 IASB Meeting

The Board voted to add the project to its active agenda.

Discussion at the October 2008 IASB Meeting

(FASB staff and one Board member joined via video link)

The staff presented the Board with two possible derecognition models and asked the Board for possible improvements to the model and approaches presented to them and an indication on the way forward.

The staff briefly revisited the reasons for adding the project to the IASB's agenda, highlighting the complexity in this area under IAS 39 and the opportunity to converge IFRS and US GAAP. Staff also noted the diversity of views amongst Board members, particularly where an entity has continuing involvement. It was noted that analysts would prefer to keep assets on the books where an entity initially had them and retained a continuing involvement.

The core principle of the staff was that an asset is to be derecognised only when an entity no longer controls the economic benefits (cash flows) of a financial asset or component thereof. This would be consistent with the definition of an asset. Control would cease when the entity had no longer the ability to obtain the underlying economic benefits for its own benefit. In case of no continuing involvement the core principle would be easily applicable, the staff acknowledged, but it would be more challenging once the entity stays involved in some way.

The staff noted that there should be symmetry in accounting. If a transferor derecognised an asset it should be recognised by the transferee - and vice versa.

The Board had a lengthy discussion about the core principle and its practical implications. Some Board members expressed concerns whether this could be operationalised. Some where also confused whether staff was addressing the asset or the right to the asset when the staff paper states 'it'. Others were concerned over the transferee focus when deciding whether to derecognise. The core principle is a transferor focus – the transferor's continuing involvement – but under the staff proposal implementing that prinicple would often involve the rights and obligations of the transferee such as ability to sell the asset.

The staff highlighted that any transfer where the counterparty has the practical ability to sell the asset would trigger derecognition. The issue was when this practical ability is missing. Then the staff suggested two approaches:

• Assess whether the transferee can obtain the underlying cash flows by means other than a transfer (approach one)
• No ability to transfer = no control = no derecognition. Therefore recognise a liability, linked presentation could be considered (approach two)

The staff recommended approach two, although it admitted that approach one is the conceptually right, based on users' and others requests for high derecognition hurdles in the light of current circumstances.

The Board continued its lengthy discussion. One Board member expressed a strong view that the approach preferred by the staff would be inconsistent with the IFRS Framework and asked whether this was not one of the decision criteria presented by the staff. Staff replied that this was not an exhaustive list.

The Chairman took an indicative vote on whether to pursue approach one or approach two. The vote was 5 in favour of approach one and 8 in favour of approach two.

The FASB staff briefly updated the Board on their proposed changes to the consolidation model. It was highlighted that the US proposals would define components of assets and would not allow linked presentation. One Board member asked whether the proposals are in line with the Framework. The staff responded that this was not the case.

The staff presented its timeframe for issuing an ED in March 2009. The Board agreed. One Board member asked the staff to prepare real world examples including disclosures to test whether this information would be useful.

Discussion at the November 2008 IASB Meeting

The Board continued its deliberations of a derecognition model to be included in a future exposure draft. The staff informed the Board that it had further developed its two approaches to implement its derecognition principle. The staff had identified several issues that the Board would need to resolve before issuing an exposure draft. At this meeting the following issues were discussed:

• What is the 'asset' referred to in applying the derecognition principle?
• Definition of 'continuing' involvement
• The Meaning of 'practical ability to transfer'
• Which perspective in the flowcharts: transferor's or transferee's?

What is the 'asset' referred to in applying the derecognition principle?

The staff introduced this issue by noting that it is important to know what the asset is to which the derecognition tests apply. The staff distinguished between transfers of the entire asset and transfers involving parts of financial assets. The Board had a lengthy discussion on this issue.

In the end, the Board agreed to the following by majority vote:

• Transfer of the entire asset: No distinction between the transfer of the asset itself and a transfer of the right to the cash flows from the asset
• Transfer of parts of financial assets:
  • For flowchart 1 (see Agenda Papers to this session): the asset could be any cash flows from a recognised (by the transferor) asset
  • For flowchart 2: the asset would be in line with the component definition in IAS 39.16 along with specific guidance on transfer of groups of similar financial assets and derivatives, embedded derivatives and equity instruments.

Definition of 'continuing' involvement

The notion of continuing involvement is important to both derecognition approaches, as it is the filter to identify 'obvious' cases where no subsequent derecognition tests are required. Staff presented the Board with four possible definitions and recommended the following definition:

Continuing involvement in the Asset represents retention of any contractual rights that resulted in the Asset or the acquisition of any new contractual rights or contractual obligations relating to the Asset (eg, any interest in the future performance of the Asset or a responsibility to make payments in the future in respect of the Asset under any circumstance).

It was noted that this was taken from the draft standard 'Financial Instruments and Similar Items' developed by the Joint Working Group of Standard Setters. The staff said that this definition would require some exceptions to allow for derecognition under flowchart 2:

• standard representations and warranties
• fiduciary servicing
• forwards and options (both with a fair value strike price)

The Board members had a lively debate on the possible definitions of continuing involvement and the consequences of it for the derecognition model. In the end the Board agreed by majority vote to accept the staff recommendation including the proposed exceptions.

The meaning of practical ability to transfer

In response to questions by Board members, the staff elaborated on the meaning of 'practical ability to transfer' an asset acquired from a transferor. Staff asked the Board whether, based on the Agenda Paper, the concept is clear and understandable.

One Board member asked whether the notion 'unique' was used in its usual sense, that is, there is nothing like it elsewhere. The staff clarified that unique was used as meaning 'not readily obtainable' – acknowledging that this notion would also need a definition.

The Board also discussed the whether a put option written by the transferor would in any way impact the assessment – would it impose additional restrictions on the transferee as, if exercised, the transferee would have to deliver the unique asset?

Finally, the Board confirmed that the concept is now clearer but that staff should expand further on the situation involving a put on the transferred asset held by the transferee.

Which perspective in the flowcharts: transferor's or transferee's?

At the Board's request, staff reconsidered whether 'practical ability to transfer' is assessed from the perspective of the transferee, while the continuing involvement test is assessed from the transferor's view. The transferee's view is also considered in assessing whether the transferee presently has other access to all or some of the cash flows of the asset for its own benefit.

After some discussion, the Board concluded that the transferee's view should be applied. Some Board members questioned whether this conclusion must be made for both approaches to implement the derecognition principle. Some believed that for flowchart 1, a transferor's view would be appropriate while a transferee's view would fit better into flowchart 2.

The staff was asked to bring back a short paper with an example that would depict the consequences of the view taken.

Finally, the staff discussed with the Board whether the list of issues provided was complete. One Board member asked the staff to add 'accordance with the framework'.

Discussion at the December 2008 IASB Meeting

The staff continued its discussions with the Board on open issues arising from the deliberations of the two different approaches to implement the agreed derecognition principle. At this session the Board discussed:

• Practical ability to transfer: impact of puts;
• Change to transferor's perspective: impact on forward examples in flowchart 1; and
• Derecognition of financial liabilities

Practical ability to transfer: impact of puts

The staff reported back on an issue that arose during the October 2008 discussions where it indicated that a transferee who purchased a non-readily obtainable financial asset together with a put option might not have the practical ability to transfer the asset to a third party without attaching a similar option. It thought the transferee was economically constrained transferring the asset without a similar option as the transferring entity would forfeit the benefit of the option.

Some Board members questioned whether this was relevant for flowchart 1 (as presented in the publicly available agenda papers). One Board member noted that he got the impression that people might not like the resulting derecognition while the transferor still retained risks via the written put without this concept of 'economic constraints'. It was also unclear for many at the table what the unit of account was, that is, was the 'asset' the transferred item alone or including the option. Another Board member noted that the concept of economic constraints could lead to recognition of assets that an entity did not control.

Staff confirmed that under flowchart 1 including or excluding the economic constraint test would lead to the same results. It was agreed to remove the references to economic constraints from flowchart 1.

Change to transferor's perspective: impact on forward examples in flowchart 1

Staff reminded the Board about the background to the agenda paper. In November 2008 the staff noted that the derecognition tests in flowchart 1 would return different results if the perspective was changed from that of the transferee to that of the transferor.

Two transactions were analysed by the staff:

• transfer of a non-readily obtainable financial asset with a physically-settled fixed-price forward purchase; and
• transfer of a non-readily obtainable financial asset with a physically-settled total return swap.

While staff admitted that the outcome in the first scenario would not change (as originally concluded), the outcome for the second scenario could change depending on how the asset is defined. The staff presented the Board with three alternative approaches to flowchart 1 as originally proposed (called 1R, 1R² and 1R³). Depending on whether the asset was contractually viewed (that is, what was contracted as the asset) or economically viewed (that is, what was economically transferred) the outcomes could be different for example 2.

The staff noted that it preferred the economic view of the asset, which was equivalent with a component approach. It also recommended adopting flowchart alternative 1R³ (as documented in the agenda paper).

It was noted by Board members that under flowchart 1R³ the first two steps were not required. Staff replied that this was done to keep the same number of steps in the flowcharts. The Board felt uncomfortable with this approach and asked the staff to condense flowchart 1 as appropriate even if this resulted in different-looking flowcharts.

The Board agreed to both the economic view and approach 1R³ subject to changes in the flowchart.

The staff continued with the derecognition of financial liabilities. It was noted that the current model for derecognition of financial liabilities in IAS 39 caused less difficulties in practice. However, a new derecognition approach might establish a principle that could be used for non-financial liabilities and would create increased symmetry between recognition and derecognition of assets and liabilities.

Staff noted that the current model focussed on the entity having a present obligation and that the definition of a liability in the Framework not only encompasses this present obligation, but also an expected outflow of resources embodying economic benefits from the entity. The staff proposed the following economic derecognition principle for financial liabilities:

An entity should derecognise a financial liability or a component thereof when it no longer qualifies as a liability of the entity (that is, when the present obligation is eliminated or the entity is no longer required to transfer economic resources to a third party in respect of the obligation).

Board members noted that the notion of a third party was not necessary and proposed to remove it. Staff and remaining Board members agreed.

The Board had a brief discussion of this definition. Board members were particularly interested in possible different outcomes based on the proposed principle. Staff confirmed that it considered the impact as low.

The Board agreed to pursue the proposed derecognition model for financial liabilities.

At the end of the session, the staff sought confirmation by the Board whether all issues had been properly captured in the list of open issues and all tentative agenda decisions had been appropriately reflected in the agenda papers. While the Board agreed, some Board members were concerned over the way forward, particularly, whether the exposure draft would be, in effect, two exposure drafts proposing both models for financial assets. Furthermore, Board members highlighted that the recent FASB proposals were not aligned to the current proposals of the staff. In the light of constituents urging the boards for converged solutions this might not be a desirable outcome. Staff noted that the vast majority of comment letters received by the FASB on its proposals indicated that constituents indeed asked the FASB to work towards guidance converged with IFRS literature. It also noted that the FASB monitors progress on the IASB's project and decisions.

Finally, staff informed the Board that discussion of this matter will be continued the next day.

Continuation of Discussion on Second Day

The staff continued its discussions on derecognition of financial assets and financial liabilities. At this session staff presented the Board with certain fact patterns to analyse the interaction of the derecognition principles for financial assets and financial liabilities. These issues were:

• Collateral arrangements which are not transfers;
• Secured liabilities with recourse; and
• Secured liabilities without recourse.

Collateral arrangements which are not transfers

The first issue was a collateral arrangement, in which the creditor had custody of and permission to sell or lend the securing assets. In this fact pattern, the staff recommended that these transactions must be assessed for derecognition with the exception of brokerage agreements where the transferee acts in an agency capacity. After some clarifications of the transaction, the Board agreed.

Secured liabilities without recourse

The second issue addressed secured liabilities where the lender had recourse, that is, the debtor accepts restrictions on the asset. Staff proposed three possible alternatives for an accounting treatment:

• The debtor could offset the two; that is, report the securing asset net of the obligation;
• The securing asset could be derecognised by the debtor and recognised by the creditor. The secured liability could be derecognised by the debtor, and the receivable derecognised by the creditor; and
• The secured liabilities and securing assets could be accounted for without special treatment, in the same way as unsecured liabilities and unpledged assets.

The staff recommended the third alternative. The Board agreed.

Secured liabilities without recourse

The third issue was split in two. In a general non-recourse situation, a lender can only look at the specified asset(s) in case the debtor defaults, but has no 'control' over what the debtor does with these assets. As the specific second alteration, the repayment of a liability depends on the specific assets the lender has recourse to.

The staff proposed three possible accounting responses:

• Nonrecourse liabilities could be offset against the securing assets. The debtor could offset the two and report the securing asset net of the liability;
• Liabilities secured under nonrecourse agreements and the securing assets could be accounted for in the same way as other secured liabilities and securing assets; and
• Nonrecourse provisions could be considered effectively to be call options, and thus the liability need not be recognised and related securing asset should be derecognised by the debtor.

Staff recommended the third alternative for both subsets of scenarios. The Board asked for further clarifications on the fact patterns and the way the transactions worked. Finally, it agreed with the staff proposal.

To further test the principles, the staff presented, in an Appendix (available in Agenda Paper 10F), further three cases that, while economically considered to be equivalent, could give different accounting answers under the proposed models. While the Board agreed with the first to cases, the third caused more confusion. It was based on a self-liquidating non-recourse fact pattern. The Board discussed further alterations to this fact pattern (including a situation where an entity promises to pay back a loan from future revenues) and had a lengthy debate on the appropriate treatment. This discussion unveiled broader issues of accounting, not part of the project. It was agreed that the issues identified during this discussion that relate to the scope of the project will be brought back.

Discussion at the January 2009 IASB Meeting

(FASB staff participated by video link.)

The Board continued its deliberations on the upcoming ED on derecognition of financial instruments. The staff gave the Board a brief update on where it was at the moment and what issues would be discussed at the January meeting. At this meeting the following issues were presented:

• Transfers involving derivatives, hybrid instruments and equity instruments
• Transfer of a component of an asset = different asset after transfer?
• Similar criterion for transfers of groups involving financial assets
• Linked presentation (will be discussed at Thursday's session)

Transfers involving derivatives, hybrid instruments and equity instruments (D/HI/EI)

The staff informed Board members that the Board would have to decide whether components as defined in flowchart 2 of the staff proposals should specifically exclude transferred portions of derivatives, hybrid instruments with separable embedded derivatives, and equity instruments. The staff proposed four alternatives (table below taken from the observer notes):

*D/HI/EI = Derivatives, hybrid instruments with embedded derivatives that require bifurcation or equity instruments.

The Board discussed, as an example, an interest rate swap. It was highlighted that it could be seen as one net stream or two streams (one inflow, one outflow). Board members seemed to come from different opinions on what the asset was and, hence, had different opinions on which alternative was appropriate.

The staff proposed alternative 4, which was a broad definition. However, the Board agreed on alternative 2, which would keep the component definition in IAS 39.16. The Board also agreed that the derecognition tests in flowchart 1 refer to 'cash flows or other future benefits'.

Transfer of a component of an asset = different asset after transfer?

This issue was a follow-on issue resulting from the discussion at the December Board meeting on non-recourse secured borrowings: Does the transfer of a component lead to the original financial asset ceasing to exist. As a consequence, any gain/loss resulting would have to be recognised when the transaction was entered into. It was highlighted that under a full fair value model this would not render any different outcome.

The staff recommended that the components a transferor retains are accounted for as new assets. After brief discussion, the Board agreed.

Similar criterion for transfers of groups involving financial assets

The staff sought the Board's input on whether a similar criterion is necessary for transfers of components of groups of whole financial assets and for transfers of a group of whole financial assets.

The Board agreed with the staff recommendation that, for transfers of groups of whole financial assets, the similar criterion in IAS 39.16 could be deleted. The staff noted that, as a consequence, the 'continuing involvement' step and the 'practical ability to tansfer' test in flowchart 2 would be applied to the group as a whole.

On the issue of components of groups, the staff noted that any decision must be consistent with the Board decision on transfers involving derivatives, hybrid instruments, and equity instruments. The Board was interested in the consequences for certain scenarios and said that the guidance should not lead to confusion amongst constituents what it was aiming at.

The Board, after a short discussion, agreed to strike out 'similar' from the component definition of IAS 39.16 for components of groups, but that the guidance was to make clear that:

• None of those assets can be assets that can, during their life, be an asset or a liability
• None of those assets can be equity instruments that involve future economic benefits other than cash flows (for example, shares)

Finally, the staff gave the Board a brief update on the comment letters received by the FASB on its proposed changes to the US consolidation standards.

Linked Presentation

The staff presented its proposals on linked presentation for inclusion in the upcoming ED. The session was structured as follows:

• Description of linked presentation and appropriateness
• Scope of linked presentation
• Display of linked transactions
• Measurement in case of presenting items linked in the statement of financial position

Description of linked presentation and appropriateness

The staff explained the merits of linked presentation as it would 'ameliorate' the grossing up of the linked items in the statement of financial presentation. The Board was split about the issue and had a lengthy discussion about pros and cons of linked presentation. Many Board members objected to linked presentation in the statement of financial position, but would accept note disclosure of linked items with appropriate narratives. The Board agreed to go forward with linked presentation.

Scope of linked presentation

Staff continued to address the transactions that would be scoped into a linked presentation. The staff proposed to allow only a subset of transactions under flowchart 2. It further proposed to include only transactions where the transferor's exposure is explicitly limited to a fixed and prefunded monetary amount. Board members were concerned over the implications of the proposal and where this could end up. It was decided to discuss the display (that is, face or footnotes) first, to enable the Board to decide on the scope.

Display of linked transactions

The staff identified two alternatives for displaying linked transactions: either present the liability deducted from the asset on the face of the financial statement or in the notes.

It was recommended to use a notes approach for implementing the linked presentation principle. While Board members seemed to agree that note disclosure was appropriate, they were split over the scope issue. After some debate, the Board decided that for flowchart 1 a broader scope was to be adopted while for flowchart 2 in general only non-recourse transactions would qualify for linked presentation.

Discussion at the February 2009 IASB Meeting

The Board continued its deliberations on an approach to derecognition of financial instruments and financial liabilities.

The notes below refer to Approach 1 and Approach 2. Briefly summarised, these are:

Approach 1

Derecognition Principle

The basic derecognition principle is that an entity should derecognise a financial asset when it no longer qualifies as an asset of the entity.

Derecognition Criteria

Approach 1 provides criteria to be used to determine when a financial asset no longer qualifies as the asset of the transferor. In particular, Approach 1 would require an assessment of whether the transferor presently has access, for its own benefit, to all of the cash flows or other economic benefits of the financial asset that the transferor recognised before the transfer.

Retained interests and beneficial interests

For transfers of part of (or an interest in) a financial asset or group of assets, Approach 1 would require the transferor to derecognise the entire financial asset (or group of financial assets) and recognise as a new financial asset (rather than as a part of the financial asset that the transferor recognised before the transfer) the retained interest in the financial asset (or group of financial assets). Similarly, Approach 1 requires a transferor to recognise as a new asset an investment that a transferor purchases from a transferee securitisation entity.

Approach 2

Derecognition Principle

Approach 2 requires an entity to derecognise a financial asset or a pre-defined component thereof if:

• a. the contractual rights to the cash flows from the asset expire; or
• b. the entity transfers the asset and:
  • (i) the entity is not involved in the asset after the transfer; or
  • (ii) the transferee has the practical ability to transfer the asset for its own benefit.

The 'continuing involvement' step (b)(i) and 'practical ability to transfer' test (b)(ii) are applied to a transferred part of a financial asset (or of a group of financial assets) only if that part comprises specifically identified cash flows and/or a proportionate share of the cash flows from that financial asset (or that group of financial assets). If there is more than one transferee, each transferee is not required to have a proportionate share of the cash flows provided that the transferring entity has a proportionate share.

Similarity to Current IAS 39

Approach 2 is similar in some ways to the current derecognition model in IAS 39 in that:

• the same definition of a 'component' (or part of an asset) is used, with some clarifications to address known application issues;
• the test of control is still used, although unlike the IAS 39 model that test has primacy;
• many of the derecognition outcomes will be similar under Approach 2 as compared to IAS 39 (the notable exceptions being transfers, such as repos, involving readily obtainable assets).

Approach 2 does differ from IAS 39 in some important ways, and as a result is less complex to understand (and arguably to apply). The differences include:

• no test of ‘risks and rewards' and
• no pass-through requirements.

Extent of Changes to IAS 39

Approach 1 proposes far-reaching changes to accounting for derecognition of financial assets. Approach 2 can be seen as an evolution to IAS 39 that improves that model.

Summary of Board Discussion

This was the first of several sessions at the February meeting. At this session the staff presented remaining issues identified when applying the two derecognition approaches to more complex cases. These issues were (applicability to approach 1 and/or 2 in parentheses):

1. Scope – transfers of financial assets that should be considered for derecognition [Approach 1 and Approach 2]
2. Derecognition or consolidation analysis first [Approach 1 and Approach 2]
3. Identical transactions but non-identical accounting outcome (transfers of proportionate interests in cash flows) [Approach 2 only]
4. Transfer of subordinated ('more risky') interests in a financial asset [Approach 2 only]
5. Practical ability to transfer in the context of securitisations [Approach 2 only]
6. Remaining interest in the asset that was the subject of the transfer [Approach 2 only]
7. Transfer of a part of an equity instrument [Approach 2 only]

Scope – transfers of financial assets that should be considered for derecognition

The staff noted that the proposed scope of transactions to which the derecognition process was to be applied could potentially be too narrow as it excluded originations, issuances and expiries. This was considered to open up structuring opportunities. In the proposed change the staff also clarified that this only relates to financial instruments. This confused some Board members as they believed the broad principles should potentially be applicable to all assets and liabilities.

However, staff highlighted that due to time constraints the efforts focussed on financial instruments, but the principles are to be revisited in the future.

The Board agreed.

Derecognition or consolidation analysis first

The staff proposed that for approach 1 derecognition is assessed before consolidation while for approach 2 derecognition is assessed after consolidation (similar to existing IAS 39). The Board had a lively discussion on that and it emerged that the real issue behind this was whether there was some continuing involvement left in the entity. The Board agreed to look only at the reporting entity in all situations.

Identical transactions but non-identical accounting outcome

The staff continued to explain that some transfers of proportionate shares in cash flows can result in different accounting outcomes under approach 2. The staff proposed to add an exemption from continuing involvement in has a proportionate share of assets is transferred.

Transfer of subordinated ('more risky') interests in a financial asset

One Board member informed the staff that he believes approach 2 would prevent derecognising higher risk interests in a financial asset while allowing derecognising interests where the transferor retains more risk, because in the first case a disproportionate share was transferred. This was considered being counterintuitive. The Board agreed that the wording could be clarified to resolve this issue, but this could be taken offline.

Practical ability to transfer in the context of securitisations

The staff informed the Board that the 'practical ability' often would prevent a transferor to derecognise assets transferred into an SPE. Staff presented a simple structure to overcome this issue. Staff proposed to make clear that the transferee to which the practical ability test is applied is the entity with which the transferor had agreements that resulted in continuing involvement. The Board agreed.

Remaining interest in the asset that was the subject of the transfer

The staff recommended clarifying in the exposure draft that under approach 2 that any remaining interest in the asset subject to transfer should be accounted as part of the previously recognised asset. The Board had a lengthy discussion on this, largely because the Board is split about the approach to be taken. In the end, the Board agreed.

Transfer of a part of an equity instrument

The staff recommended to the Board that transfers of parts of equity instruments would qualify as a component under approach 2 and that the asset definition in the model should be amended accordingly.

At the end of the session the chairman took an indicative vote on the two approaches. A majority voted for approach 2 (similar to the current IAS 39 model) with a considerable minority favouring approach 1. The ED will contain both approaches - one as an alternative view.

Continuation of discussion from previous day

The Board continued its deliberations on its upcoming exposure draft on derecognition of financial assets and financial liabilities. This final session before the staff will finalise the exposure draft the Board discussed disclosures, comment period for the exposure draft and transition.

Staff reminded Board members that it was necessary to reach these final decisions at this meeting in order to meet the timetable for issuing an exposure draft in first half of 2009. The Board was informed that the discussions today would focus on disclosure for approach 2 as this approach gained a majority in an indicative vote taken the previous day.

Staff noted that the disclosure requirements were split up in two sections:

• Transfers of financial assets that are derecognised
• Transferred financial assets that are not derecognised

The agenda papers for this session contain worked examples for the disclosure proposals and can be downloaded from the IASB website.

Transfers of financial assets that are derecognised

For such transfers staff defined the disclosure objectives as follows:

1. Provide users with information about the nature and risks associated with an entity's continuing involvement with derecognised financial assets
2. Provide users with information that will help them reconstruct the entity's financial statements on the basis of a 'no continuing involvement' approach to derecognition

Those objectives would drive the disclosure requirements. The staff discussed with the Board in detail all proposed disclosures.

Staff noted that many of the disclosures flowing from objective 1 would already be required under IFRS 7, but on a more aggregated level (class of financial instruments). The proposal would require more granular information focusing on transfers with continuing involvement that qualify for derecognition. The Board agreed to the proposals that would address disclosure objective 1.

The staff then turned to disclosure objective 2. Some Board members noted that requiring information that would allow users to reconstruct the financial statements as if they were prepared under a different derecognition model would undermine the model the Board would has agreed on. In response, staff noted that users expressed the desire to obtain this information and it might not be sensible under the current circumstances to take away information requested by users. It was further highlighted that these disclosures would not represent pro forma information.

Board members expressed concern over several of the proposed disclosures for objective 2. They felt that it could be burdensome to gather the information and questioned the relevance. The Board discussed at length the staff proposals.

Staff noted that the main driver was to provide information on the underlying assets that determine the values of the items remaining on the balance sheet.

The Board agreed on the following disclosures:

1. at the reporting date, the fair value of the transferred financial assets, including their level in the fair value hierarchy
2. at the reporting date, the present value of any cash outflows to repurchase the transferred financial assets
3. at the date of transfer the gain or loss on derecognition, and the line item(s) in which the gain or loss is included
4. if transfer activity is concentrated around the end of reporting periods, an entity should disclose that fact and the volume (amount) of that transfer activity in those periods
5. income and expenses recognised by the entity from its continuing involvement during the reporting period and the line items in which those income and expenses are included
6. any additional information that it considers necessary to meet the disclosure objective

It was clear from the discussions that these disclosures would not be in line with disclosure objective 2 and it was decided to abandon this objective.

Transferred financial assets that are not derecognised

The staff introduced its proposals for transfers that do not qualify for derecognition. The following disclosures were proposed:

1. the nature of the assets transferred.
2. the carrying amounts of the assets and of the associated liabilities
3. when the entity continues to recognise a portion of the transferred assets, the carrying amount of the original assets.
4. the nature of the risks to which the entity remains exposed
5. when the counterparty to an associated liability has recourse only to the transferred asset, a schedule linking the fair value of the transferred asset and the fair value of the associated liability, and disclosing the fair value of the entity's net position

Some Board members were concerned that this would be 'information overkill' and whether the information is useful and not redundant compared to what is already required by IFRS 7. The Board discussed some of the worked examples on these disclosure proposals in detail.

Finally, the Board decided to keep the disclosure proposals, but ask two or three users after publication of the exposure draft to test them. The Board also decided to ask a question on the usefulness of these disclosure proposals in the exposure draft. Some Board members expressed the view that the discussions on derecognition disclosures made clear that IFRS 7 would need an overhaul. However, they acknowledged that this was a separate issue.

Comment period for the exposure draft

After brief discussion, the Board agreed to the staff recommendation to expose the derecognition document for comment for 120 days.

Transition

The staff proposed that any guidance was to be applied prospectively, but that entities would be required to disclose the type assets that they derecognised under the current IAS 39 model, but would not under the new guidance.

The Board agreed to prospective application with regard to the financial statements, but some Board members were concerned that it should be clear that the new disclosures requirements should also be required for transactions to which the current IAS 39 model applied. The Board had some discussion on this issue and finally decided to require disclosure under the new guidance for previous transactions, but monitor constituents' reactions to that proposal.

Discussion at the March 2009 IASB-FASB Joint Meeting

The purpose of the session was to discuss the strategic options available to the boards in meeting the MoU commitments relating to consolidation and derecognition. Staff presented the current state of play on these topics at both boards. They noted that the financial crisis lead to significant pressure to get the projects accelerated. Staff highlighted that the ideal would be both boards develop common requirements, but they concluded this was not achievable at present.

The staff presented both boards with two strategic options:

1. FASB to complete its projects on consolidation and derecognition, then join the IASB in developing common standards. IASB to slow down its projects so the FASB has the opportunity to join the due process.
2. FASB to complete its projects on consolidation and derecognition, then use the IASB exposure drafts as starting point. IASB to finalise its documents. This approach is similar to the one taken on Fair Value Measurements (where the IASB used SFAS 157 as a starting point).

Board members asked the staff about differences between the current FASB proposals and the direction the IASB is taking in the two areas. They discussed possible approaches that could result in converged guidance in the longer term while allowing for the current pressure on both boards to produce overhauled guidance in the short-term. This could avoid significantly changing the same guidance again within a short time frame. Staff confirmed that both sides are monitoring progress and trying to identify differences between the current thinking of the boards on these issues as early as feasible, but this process takes time and ressources.

The boards finally agreed to pursue an approach where the FASB finalises its current proposals and then exposes the IASB documents, once finalised, as exposure drafts (FASB would already allocate resources during the redeliberation and finalisation phase of the IASB documents). If any issues were identified during the FASB redeliberations, they could be addressed via the two-year post-implementation review that is part of the IASB's due process.

Exposure Draft Published 31 March 2009

On 31 March 2009, the IASB invited comment an exposure draft of proposals to improve the requirements for derecognition of financial instruments currently in IAS 39. Derecognition means removing a financial instrument from an entity's financial statements. This occurs if the entity no longer controls a financial asset or no longer has an obligation to settle a financial liability. The IASB is also proposing to enhance the disclosures currently required by IFRS 7, especially in situations where an entity continues to have an ongoing involvement in a financial asset that would be derecognised under the proposals. The derecognition exposure draft (ED/2009/3 Derecognition) is part of the IASB's comprehensive review of off-balance sheet activities; in December 2008, the IASB published ED 10 on Consolidation to tighten the requirements for identifying which entities a company controls, and therefore consolidates. The IASB will hold public roundtables to seek wider views on its derecognition and consolidation proposals (dates to be announced). Comments on the derecognition exposure draft are due by 31 July 2009. Click for IASB Press Release on Derecognition (PDF 22k). Although the IASB's derecognition and consolidation projects are not currently joint projects with the US Financial Accounting Standards Board, both board have already announced their intention that these will become joint projects once the FASB has completed short-term amendments to its existing standards.

Deloitte's IFRS Global Office has published an IAS Plus Update Newsletter – New Derecognition Model Proposed for Financial Instruments (PDF 115k).

Discussion of Derecognition at the IASB Roundtable 15 June 2009

The IASB held a series of roundtable discussions with constituents focusing on its recent proposals in ED 10 Consolidation and ED/2009/3 Derecognition. Roundtables have been held in North America and Asia. The European roundtables were held in London on 15 and 16 June 2009, in conjunction with the regular meeting of the IASB. Presented below are the preliminary and unofficial notes taken by Deloitte observers on the discussion of derecognition at the London roundtables.

Discussion at the September 2009 IASB Meedting

The Board was presented with a comprehensive analysis of comment letters and outreach to constituents on the derecognition project. No decisions were taken during this session. FASB Board members and staff joined the meeting via the video link.

Overall, constituents overwhelmingly disagreed with the proposed approach as described in the ED. A significant majority of the arguments presented was similar to the reasons stated in the Alternative View in the ED.

A majority of constituents seemed to favour a kind of alternative approach, mainly for the reasons described in the ED. Nonetheless, many constituents were concerned that the alternative approach was not sufficiently developed, might lead to misleading representation of some transactions, and created opportunities for earnings management. Some of the constituents noted also their concerns related to expansion of fair value measurement, transfer definition, and lack of convergence with the US GAAP.

Most respondents disagreed with the Board (and the approach in both proposed and alternative approach) for treatment of the 'repo transactions' and asked the Board to reconsider their decision. One Board member suggested that regulatory regime and usage of repo transaction by some of the central banks to provide liquidity to financial markets may have played a role. The Board agreed to revisit this area in the process of re-deliberations.

The staff then continued its presentation with listing the problems with current IAS 39 requirements (internal inconsistencies, conceptual weaknesses and practical difficulties) before presenting 4 alternatives to replacing the current IAS 39 guidance on derecognition:

1. Enhancing disclosures
2. Address the know issues with IAS 39 and enhance the disclosures
3. Develop a proposed approach
4. Develop an alternative approach

The staff expressed its preference for the forth approach. The staff pledged to prepare further analysis for the October Board meeting in order to facilitate the Board`s decision.

In response, several Board members expressed their concern with the lack on convergence with FASB and urged the Board to co-operate with FASB and to provide a converged standard, issue that was highlighted also by the comment letters. The FASB members noted that FASB had recently issued FAS 166 on derecognition but it considered replacing the concept of legal isolation as it was just a temporary solution.

One FASB member noted that the Board has two alternatives how to proceed – either analyse the differences between current IAS 39 requirements and FAS 166 and try to converge on that basis or to work on a new standard based on the alternative approach. Some IASB members clearly preferred the second alternative. This issue will be discussed further at the joint meeting in October.

Regarding timing, several Board members noted that of alternative approach was to be developed re-exposure would be required and thus issuance of the new standard would be delayed. FASB members also noted that as FAS 166 was issued only recently, longer period would be required before a new standard was adopted.

Discussion at the October 2009 IASB Meeting

Bankruptcy remoteness concept

The Board analysed the legal isolation test with reference to the derecognition model. The Board discussed the issues that were connected with the application of the legal isolation test in US GAAP (a transfer must be bankruptcy-remote for an asset or component of an asset to be eligible for derecognition as a result of the transfer.

The Board decided not to include the legal isolation criteria in its derecognition approach as it believed that derecognition criteria should be driven by accounting principles and not specific legal rules. In the view of one Board member, determining what was and what was not a sale in financial statements should be based on accounting principles and not determined with reference to law. The Board was also concerned that introduction of the legal isolation test would be inconsistent with the Framework.

On the other hand, the Board stressed that bankruptcy remoteness concept should be reflected in measurement of the instruments and clarified by appropriate disclosures.

Accounting for repurchase agreements and similar transactions

The Board considered accounting for repo transactions in response to a very strong opposition among constituents to the proposals in the ED (which proposed to treat these transactions as sale transactions). The Board was told that these transactions were almost universally perceived as financing and that their treatment as sale transactions would increase volatility in profit or loss that had no economic substance. Moreover, several Board members noted that proposed treatment would be inconsistent with treatment of sale and leaseback transactions and might be contrary to substance over form principle embodied in the Framework.

On the other hand, other Board members preferred more conceptual arguments in favour of the proposed treatment (for example, differences to collateralised loans, existence of two sources of credit risk).

After an extended debate the Board acknowledged that some of the transactions, generally referred as repos, might have economic substance of a loan and some might have the economic substance of a sale. Consequently, the Board asked the staff to propose a criterion that would try to capture this distinction. In addition, the Board decided to discuss this question with the FASB in an attempt to coordinate views on this matter.

Accounting for retained interests

After a short discussion, the Board agreed to treat retained interests representing a proportionate interest in the asset previously recognised as part of the asset previously recognised. In all other cases, the Board decided to treat retained interest as a new asset and measure it at fair value on initial recognition. Subsequently retained interest should be accounted for on the basis of classification and measurement guidance on financial instruments.

The derecognition approach

The Board discussed two possible derecognition approaches, the amended IAS 39 approach and a modified alternative approach (modified by the accounting for repos and retained interests). The Board tentatively agreed with the alternative approach. Nonetheless, the Board agreed to discuss this approach with the FASB with the aim to achieve convergence. The Chairman noted that in light of this decision, re-exposure of the derecognition ED was probable.

Discussion at the December 2009 IASB Meeting

Two FASB members joined the discussion via videoconference from Norwalk.

Modification and extinguishment of financial liabilities

The Board discussed the accounting for 'substantive modification' of a financial liability or an exchange of one debt instrument for another debt instrument with 'substantially different terms'.

Most Board members agreed that a quantitative '10% test' should be abolished as it was arbitrary, represented a bright line that was inconsistent with principle-based Standards, and led to diversity in practice.

Some Board members expressed concerns about how the 'substantive modification' notion defined in a purely qualitative manner would capture more subtle notions (for instance, changes in seniority of the liabilities that would influence fair value). Other Board members discussed the point of view from which the modification should be addressed (issuer or lender).

One Board member proposed that a substantive modification would be any modification that changes the fair value of the instrument. Another Board member expressed his opinion that the ultimate question behind the approach was when to recognise an unrecognised change of fair value of a financial instrument. He was particularly concerned that any of the discussed approaches would lead to a free choice and proposed to recognise only a change of the fair value. Other Board members disagreed because they felt that this proposal would result to a new measurement attribute that was inconsistent with other measurement attributes defined. Moreover, in their opinion, identical economic positions would be treated differently.

After a lengthy discussion the Board adopted an approach that defined 'substantive modification' that leads to extinguishment of financial liability from a qualitative standpoint: 'change in the nature of the investment the original contract represented', which would be assessed based on all the facts and circumstances. The Board agreed to provide additional guidance in the form of non-exhaustive examples as to when the nature of the original investment changed. The Board also agreed to include substantive changes in the timing, amounts, or uncertainty of the cash flows or the fair value of the original contract from that of the amended contract as indicators of 'substantive modification' of the financial liability.

Accounting for extinguishment and modifications of financial liabilities

After a brief discussion the Board confirmed the mechanics of the 'extinguishment accounting' as proposed in the exposure draft and currently defined in IAS 39.

The Board agreed to recognise in profit or loss all costs and fees related to the instruments being extinguished. On the other hand, costs and fees directly attributable to the issue of the debt instrument associated with the new liability should be accounted for in accordance with the requirements of IAS 39.

For the financial liabilities that do not fulfil the criteria for the 'extinguishment accounting' the Board confirmed the mechanics of the 'modification accounting' as proposed in the exposure draft and currently defined in IAS 39. The modification accounting would lead to adjustment of the carrying amount of the liability for any costs or fees incurred. The Board decided that an entity should recognise the gain or loss in a transaction that qualified for modification accounting immediately into profit or loss, and not include the gain or loss as part of an adjustment to the effective interest rate over the remaining term of the modified financial liability.

The Board confirmed the mechanics of the 'partial extinguishment accounting' in the context of an entity repurchasing of its original financial liability as proposed in the exposure draft and currently defined in IAS 39.

The Board continued with the deliberations on the 'debt-for-equity' swaps. The Board confirmed the guidance based on the consensus reached by the IFRIC in IFRIC 19 subject to modification of the derecognition approach on 'substantial modification' of an instrument or a portion thereof. Moreover, the Board decided that if there was a difference between the fair value of the liability that was extinguished and the fair value of the equity instruments issued as consideration, the difference should adjust the gain or loss to be recognised to the extent that the difference qualified as an asset or liability.

Modification of financial liabilities

The Board agreed in principle that in a contract modification that met substantial modification criteria (and, therefore, is accounted for as an extinguishment of a financial liability by the debtor/borrower), derecognition requirements for the financial asset of the creditor/lender should be symmetrical.

The Board discussed implication of this decision on broader financial instruments project and asked the staff to provide additional analysis on the following meeting. The staff expressed its initial view that this decision would lead to recognition of any 'day one gain or loss'. The Board asked the staff to include in the analysis also effects on the reclassification criteria in IFRS 9 and recognition and presentation of any impairment of financial assets in case concessionality was embedded in the 'substantial modification'.

Discussion at the January 2010 IASB Meeting

Offsetting of financial assets and financial liabilities

This was an educational session. No decisions were made.

The Board considered offsetting of a financial asset and a financial liability and presentation of the net amount on the face of the statement of financial position. Despite being a presentation rather than derecognition issue, the Board considered whether to include offsetting in the scope of the derecognition project.

The Board noted that offsetting rules were different in US GAAP and IFRSs. Those different requirements were particularly challenged due to current discussion over the new regulatory leverage ratio.

The Board agreed that convergence on this particular issue would be more than needed. Nonetheless, the staff noted that from the preliminary discussion with the FASB members, the FASB was reluctant to address that issue in the foreseeable future. The Board agreed to discuss the issue at the next joint meeting.

Some Board members were reluctant to include this issue in the derecognition project as they feared it might jeopardise convergence on derecognition.

The Board discussed some of the differences between the US GAAP and the IFRSs in the area of offsetting. From the discussion it was obvious that a clear majority of the IASB members strongly preferred the IFRS requirements on offsetting to the FASB rules, especially with respect to the right to set off.

The Board also discussed the impact of single-agreement provisions in master agreements (for example, ISDA master agreement). There were divergent views how this single agreement provision should be accounted for, whether it should be considered for accounting, and if so, then under which conditions.

The Board agreed first to discuss the issue with the FASB and only then to consider whether it needed to address any of these issues separately.

Discussion at the February 2010 IASB Meeting

Transfer definition

The Board discussed the set of concerns raised by respondents to the Derecognition ED with respect to the definition of transfer. The Board agreed with the staff analysis that in the alternative approach, the link between the financial asset and the transaction transferring the economic benefits is of crucial importance. Therefore, the Board decided not to provide a transfer definition in the final Standard, but to deal with the individual issues raised by providing additional application guidance on application of the derecognition principle underlying the alternative approach.

Some Board members expressed their concerns how consistent would be this decision with the conclusions reached in other projects, especially with respect to the importance of legal form of the transaction in some cases (e.g. leases).

The Board continued to discuss the question whether 'economic' benefits were to be assessed in derecognition principle include voting or subscription rights. Most Board members agreed that inclusion of these rights in the definition of economic benefits is consistent with the general principle of the model, to the extent they were not recognised separately. Nonetheless, they expressed concerns relating to valuation, in particular, of the non-financial economic benefits and they suggested additional application guidance in this area.

Some Board members stated that in their opinion the impact of the recognition of differences between values of these rights in profit or loss would be limited, as in practice these rights being transferred would not have much value, unless connected with control premium.

Some Board members were concerned by the implication of such decision, especially for temporary transfer of non-financial benefits. The staff responded that such distinction between temporary and permanent transfer would contradict the principle of the model and they analogised it to passing of all interest for loans to a third party.

One Board member expressed his concerns that the alternative derecognition approach would lead to a free choice of classification of financial assets and suggested to be limited. Another Board members responded that these concerns do not relate to the derecognition principles but rather to classification criteria of IFRS 9.

Finally, by a large majority, the Board agreed that economic benefit concept shall include both financial and non-financial economic benefits.

Derecognition Principle - Access to economic benefits

The Board discussed other issues related to the derecognition principle raised by constituents. The Board briefly discussed and agreed with the proposed clarifications of terms of the alternative approach (definition of the derecognition principle, definition of present access and benefit).

The Board discussed in particular the issue of unit linked insurance i.e. whether does the sale of units in insurance fund in which the insurer has agreed to pass onto the policyholder the economic benefits of the underlying linked investment constitute a transfer. The Board acknowledged the links with the insurance projects and asked the staff to analyse the matter further beyond the simple answer that if such asset is outside of scope of IAS 39 it would not be subject to derecognition rules.

In a further discussion that referred to the 'empty SPEs' issue, some Board members emphasised the need for consistency between the consolidation and derecognition guidance and asked the staff to consider this in further analysis. One Board member pointed out that the issue of empty SPEs would be more pressing for the FASB as it would mean that even such empty shell would have to be consolidated under FASB consolidation rules.

The Board discussed the need for specific guidance for pass-through arrangements. Most of the Board members disagreed with the staff recommendation that the new Standard would not include guidance related to the pass-through test in IAS 39. Even though they acknowledged that the recognition principle might address all the issues intended to be addressed by the pass-through test it would represent useful application guidance, given that it is part of the guidance now.

Accounting for repurchasse agreements

The Board discussed the accounting for repurchase agreements. Although most of the Board members expressed their conceptual preference for the sale approach, they acknowledged that such approach was not tenable given the level of disagreement from constituents.

Most Board members agreed that the guidance for repurchase agreement should be formulated as an exception from the general derecognition principle. Given this decision, most Board members agreed that this guidance should be as converged with the FASB as possible even though such solution might be prone to structuring.

Most of the Board members agreed that a transaction would be treated as secured financing, if the agreement both entitles and obligates the transferor to repurchase or redeem transferred financial assets from the transferee and all of the following conditions are met:

• (a) The financial assets to be repurchased or redeemed are the same or substantially the same as those transferred.
• (b) The agreement is to repurchase or redeem them before maturity, at a fixed or determinable price.
• (c) The agreement is entered into contemporaneously with, or in contemplation of, the transfer.

The Board decided not to include the requirements for collateral maintenance that are currently part of the U.S. GAAP to the proposed approach, due to the concerns about application of such guidance in the IFRS context.

The Board decided also to discuss these conditions with the FASB in order explore any potential differences.

Finally, following a brief discussion, when the Board discussed the possibility of the same asset being portrayed in financial statements of multiple companies the Board agreed that the resulting asset should be presented as the right to get the asset rather than the asset itself. The Board also did not agree with any 'linked' presentation of assets and liabilities in the Financial Statements.