IFRS 9 / IAS 39 — Derecognition of modified financial assets

Date recorded:

Derecognition of modified financial assets

In this session, the staff will ask the IFRS Interpretations Committee whether they would like to progress with a potential project to clarify IFRS 9 and IAS 39. The project would relate to derecognition requirements on modifications or exchanges of financial assets. Staff had performed an initial analysis on the general issues with this topic. The results of the analysis are presented in the agenda paper.

Staff recommendation

The staff concluded that it would be difficult to develop a narrow-scope project, as there are potential implications for the derecognition of transferred financial assets, linkage of transactions and the derecognition of modified financial liabilities. Moreover, such a project would require a significant amount of time and resources. The staff also noted that there was limited evidence of a pressing need for new guidance.

Hence, the staff recommends not to pursue the issue at this time. Individual members of the IASB supported this recommendation in an informal sounding.

Committee discussion and decision

Some Committee members disagreed with the staff recommendation and believed the issue could be narrowed down sufficiently to be addressed by the Interpretations Committee. They acknowledged that the process would not be simple but in their view, it would be feasible. Some expressed disagreement with the statement that there was limited evidence of a pressing need as they had been observing significant diversity in practice. The Technical Director acknowledged this but said that the issue could not be fixed quickly as the existing guidance in IAS 39 and IFRS 9 would have to be amended. Several Committee members conceded that further discussion of the issue would be futile as long as the IASB remained reluctant to address it.

An observing IASB member added that developing guidance would be very difficult as the derecognition requirements for liabilities could not simply be mirrored for the asset side. This was mainly owing to the fact that financial assets (unlike financial liabilities) are subject to impairment and the impairment guidance would interact with any guidance on modifications.

The Chairman called a vote on the issuance of an agenda decision. 9 of the 14 Committee members voted in favour of a rejection notice. The Chairman concluded that this was a sufficient majority.

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