The staff proposed the following text for IAS 39 paragraph 2(f):

[This Standard shall be applied by all entities to all types of financial instruments except] "financial guarantee contracts (including letters of credit and other credit default contracts) that provide for specified payments to be made to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due under the original or modified terms of a debt instrument (see paragraph 3 and paragraph AG4A of Appendix A). Although such a contract is an insurance contract as defined in [soon to be issued] IFRS 4 Insurance Contracts, it is excluded from the scope of IFRS 4. An issuer of such a financial guarantee contract shall initially recognise it at fair value, and subsequently measure it at the higher of (i) the amount recognised under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, and (ii) the amount initially recognised less, where appropriate, cumulative amortisation recognised in accordance with IAS 18 Revenue. Financial guarantees are subject to the derecognition provisions of this Standard (see paragraphs 39-42 and Appendix A paragraphs AG57-AG63)."

The Board agreed that any changes to this arising from the exposure draft previously agreed would be effective from 1 January 2006 and would be applied retrospectively.