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IAS 39 — Accounting for different aspects of restructuring Greek Government bonds

Date recorded:

The Committee previously considered a request for guidance on several accounting issues that resulted from the restructuring of Greek government bonds (GGBs) in 2012. The Committee previously concluded that the GGBs surrendered in March 2012 should be derecognised where the new GGBs received as part of the debt restructuring are recognised as new assets. The Committee subsequently considered whether paragraph AG5 of IAS 39 could apply when determining the effective interest rate on initial recognition of those new GGBs. Applying paragraph AG5 of IAS 39 means that the effective interest rate would be determined at initial recognition using estimated cash flows that take into account incurred credit losses.

At its previous meetings, the Committee noted that paragraph AG5 of IAS 39 applies to acquired assets, which includes both purchased and originated assets. Even though an origination of a debt instrument with an incurred loss is unusual, the Committee identified situations in which such transactions occur. For example, transactions can arise that involve originations of debt instruments outside the normal underwriting process as a result of significant financial distress by an obligor to a pre-existing relationship. This could result in derecognition of the original financial asset and recognition of a new financial asset that has incurred losses on initial recognition. The Committee concluded that the assessment of whether an incurred loss exists on initial recognition of an asset requires judgement.

On the basis of this analysis, the Committee tentatively decided not to add this issue to its agenda.

At this meeting, the staff presented three comment letters which were received in response to the tentative agenda decision. Two of the comment letters supported the Committee’s decision not to add this issue to its agenda for the reasons provided in the tentative agenda decision, while the last letter supported the tentative agenda decision but requested some amendments to the wording of the agenda decision. This letter also requested that the IASB give further consideration to certain issues as part of its project to replace IAS 39.

Considering this feedback, the staff recommended that the Committee reconfirm its tentative agenda decision. Regarding the suggestion that the IASB further consider certain issues in its project to replace IAS 39, the staff noted that the IASB has already considered these issues and constituents will have the opportunity to comment on the results of these considerations in the Board’s upcoming exposure draft on the financial instrument projects. Therefore, no further action was required of the Committee.

Following this feedback, and without additional debate, the Committee reconfirmed its previous agenda decision, subject to minor editorial changes, to not add this issue to its agenda.

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