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IAS 39 Financial Instruments: Securitisations - Derecognition of Groups of Financial Assets

Go To List of IFRIC Issues How best to make the requirements of IAS 39 and summarised in the flowchart in IAS 39 AG 36 operational. Discussion at the March 2006 IFRIC Meeting The staff conducted an extended educational session on issues before the IFRIC. It was noted that IFRIC members were aware of diverse accounting treatments around the world as well as divergent interpretations of how IAS 39 AG 36 should be applied in practice. After working through the staff's initial analysis, the IFRIC asked that the staff treat the various issues identified as part of a single Interpretation and proceed with the project on that basis. Discussion at the May 2006 IFRIC Meeting The staff presented the IFRIC with three different views of how 'groups of similar financial assets' should be interpreted in relationship with the derecognition provisions of IAS 39. The debate focussed on whether 'similar' in paragraph 16 was only relevant when grouping assets that have either a pro rata share of cash flows or a portion of specifically identified cash flows, as opposed to a wider interpretation of 'similar' that focuses on whether cash instruments, like receivables, are similar to derivatives. Many considered that the inclusion of the word similar had relevance when determining which assets can be grouped together when applying the derecognition decision tree under IAS 39. If the Board had intended something different when developing IAS 39, many considered this view was not clear from the current words in the standard. If the IFRIC were to pursue this alternative interpretation, IAS 39 would potentially need to be amended through the deletion of the word 'similar'. The IFRIC decided that the staff should consider the various options available to IFRIC and propose alternatives at a future meeting. Discussion at the November 2006 IFRIC Meeting The staff reminded the IFRIC that two application issues related to derecognition of financial instruments had been referred to the IASB at the request of IFRIC. The IASB had discussed both issues at their September 2006 meeting and the IASB had given their views on those issues. In particular, the Board had noted that derivative instruments are not 'similar' to non-derivative financial assets for the purposes of IAS 39 paragraph 16 and that transferred derivatives that could be assets or liabilities (such as interest rate swaps) would have to meet both the financial asset and financial liability derecognition criteria. In addition, the IASB indicated that a transaction in which an entity transfers all the contractual rights to receive the cash flows without transferring legal ownership of the financial asset, would not necessarily be assessed as a potential pass through. Conversely, the pass through tests in IAS 39 paragraph 19 would be applied when the entity does not transfer all the legal rights to the cash flows of a financial asset, such as in a disproportionate transfer. The IFRIC agreed that it should not take these issues to the Agenda. However, the level of discussion, including referral to the IASB, suggested that there was a lack of clarity in the guidance available, and that the Agenda Decision should seek to clarify the current requirements as well as giving constituents a definite indication about the way in which the IASB would seek those requirements to be applied. The IFRIC will consider the Agenda Decision wording at a subsequent meeting.