IFRS 9 and IAS 39 — Fees and cost included in the 10 per cent test for derecognition of financial liabilities

Date recorded:

This is a new issue. 

The Interpretations Committee received a request to clarify which fees and costs should be included in the ’10 per cent’ test for the purpose of derecognition of a financial liability.

The staff has identified two different views that could be taken on the issue:

View 1: Only fees paid to, or received from, the lender

Proponents of this view think that the test is intended to capture cash flows between the borrower and the lender that may be referred to as a ‘fee’, but in substance are indistinguishable from the other contractual cash flows of the new debt. Hence, they should be included within the contractual cash flows of the new debt when determining whether the old and new debt are substantially different.

The lack of any reference to ‘costs’ in the sentence describing the ’10 per cent’ test in IFRS 9.B3.3.6 reinforces the view that it is only fees paid to, or received from, the lender, not to other third parties, that are included in the ’10 per cent’ test.

View 2: Fees paid to, or received from, the lender plus directly attributable third-party fees

Proponents of this view think that the term ‘costs’ and ‘fees’ in IFRS 9.B3.3.6 can be read as being synonymous. Consequently, they think that no distinction should be made when performing the ’10 per cent’ test.

Furthermore, proponents draw an analogy to transaction costs included in the initial carrying amount of a financial asset or financial liability which includes ‘fees and commission paid to agents (including employees acting as selling agents), advisors, brokers and dealers, levies by regulatory agencies and security exchanges and transfer taxes and duties.’ They argue that it would therefore not be consistent to define ‘fees’ narrowly for the ’10 per cent’ test.

Outreach on the issue revealed that View 1 is more commonly observed than View 2, however there is a diversity in practice.

The staff analysed the issue and agree with View 1. They think that IFRS 9 and IAS 39 sufficiently distinguish fees paid or received between the parties to the contract from other costs, such as transaction costs. The staff also think that this distinction is useful when considering which fees to include when assessing the effect of contractual changes in the cash flows for the purpose of derecognition of a financial liability.

On the basis of the analysis performed, the outreach results and our assessment of the Interpretations Committee’s agenda criteria, the staff recommend that the Interpretations Committee should not add this issue to its agenda.


The Interpretations Committee approved the staff recommendation for issuing a [tentative] agenda decision.


There was general agreement with the analysis performed by the staff. The concerns raised to during the discussion were: (i) the focus should be in contractual cash flows; there were suggestions to modify the wording so that instead of referring to fees between the lender and borrower, the agenda decision should refer to contractual cash flows; (ii) whether the agenda decision was an inference of the Standard rather than a direct interpretation of the Standard as written; (iii) whether issuing an Interpretation would be a better solution; and (iv) concerns about the staff references to materiality in the analysis--for example it was mentioned that the focus should be on whether the fees might or might not change the outcome and if it changed the outcome then the impact would be material.

During the discussion the possibility of developing an annual improvement was raised.  The Chairman indicated that the issue did not meet the criteria for an annual improvement.  He said that there had to be significant diversity in practice. The staff also mentioned that they are only trying to clarify the words in the Standard.  The staff also pointed out that their outreach activities reflected that view 1 was the preferred option.

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