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:
- Provide users with information about the nature and risks associated with an entity's continuing involvement with derecognised financial assets
- 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:
- at the reporting date, the fair value of the transferred financial assets, including their level in the fair value hierarchy
- at the reporting date, the present value of any cash outflows to repurchase the transferred financial assets
- at the date of transfer the gain or loss on derecognition, and the line item(s) in which the gain or loss is included
- 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
- 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
- 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:
- the nature of the assets transferred.
- the carrying amounts of the assets and of the associated liabilities
- when the entity continues to recognise a portion of the transferred assets, the carrying amount of the original assets.
- the nature of the risks to which the entity remains exposed
- 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.
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.