Guarantee over a Derivative Contract (IFRS 9)

Date recorded:


In its March 2023 meeting, the IFRS IC discussed a submission about how to assess whether an issuer accounts for a guarantee written over a derivative contract as a financial guarantee contract or a derivative. In the fact pattern described, Entity C provides a guarantee over a derivative contract between Entity A and Entity B, which promises to reimburse Entity A, in full or in part, the actual loss suffered in the event of a default by Entity B. Reimbursement under the guarantee will be provided only if the derivative contract is a financial asset for Entity A and Entity B has failed to make payment of the close-out amount when due in full or in part. The close-out amount is fixed only in the event of a default and is based on the fair value of the derivative contract. The IFRS IC concluded that the matter is not widespread and the effect is not material. Therefore, the IFRS IC decided not to add a standard-setting project to the work plan. Six comment letters were received, and all respondents agreed with the IFRS IC’s decision.

Staff analysis

All respondents agreed with the IFRS IC’s decision not to add a standard-setting project onto its work plan for the reasons set out in the tentative agenda decision, i.e. the matter described in the request is not widespread, and that when the matter does arise, the amounts involved are not material.

Staff recommendation

The staff recommended finalising the agenda decision.

IFRS IC discussion

Two IFRS IC members pointed out that “not material” also appears in the conclusion of this agenda decision and wondered whether it should be deleted like in the previous agenda decision. The staff responded that there is evidence from the information request that this matter is not material and suggested to retain these words.

IFRS IC decision

The IFRS IC, by a unanimous vote, decided to finalise the agenda decision.

Related Topics

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