The Board was asked to consider amendments to IAS 39, Financial Instruments: Recognition and Measurement to adopt a simpler approach to the derecognition of financial assets. There are currently inconsistent derecognition models applied in IAS 39, control versus risks and rewards, and therefore different conclusions can possibly be reached under different paragraphs. The IAS 39 Implementation Guidance Committee (IGC) has previously tried to eliminate some of these inconsistencies with its interpretations, inspired by the principles raised by the Joint Working Group, and many of the interpretations of the IGC dealing with derecognition will be incorporated into the new section of IAS 39 on derecognition.

The new requirements will be split between:

• Derecognition of financial assets including an explanation of the model and measurement issues
• Repurchase agreements and security lending operations
• Derecognition of financial liabilities

There was unaminous agreement by the Board to adopt a continuing involvement model for derecognition. This model requires that an asset or liability, or component thereof, be derecognised to the extent that the entity has no continuing involvement in the asset or liability. This condition is met if the transferor gives up control of the rights that comprise a financial asset or a portion of a financial asset and cannot give them back. If continuing involvement is retained, the cash flows related to the retained risk must continue to be recognised. This may result in the recognition of assets greater than original balance with related liability also recognised. Continuing involvement would exist through call and put options, forwards, guarantees, subordinations, and other means. There was agreement that this model significantly simplifies the accounting for derecognition.

Where financial assets are sold through an SPE, generally they will be consolidated in accordance with SIC 12, Consolidation - Special Purpose Entities. On an ongoing basis, the investor in the SPE needs to consider whether they have maintained continuing involvement.

Repurchases and security lending will not result in derecognition and the IGC interpretations regarding right of first refusal, wash sales and clean up calls are to be incorporated into the ED. This does not change the principle requirements for the derecognition of financial liabilities and the current IGC interpretations are to be incorporated.

Further discussions of IAS 39 are to take place at a future meeting on a review of the sufficiency of the disclosure requirements of IAS 32 and IAS 39.