Financial Instruments: Impairment

Date recorded:

Transition and Effective Date

The staff presented two approaches to transition that are in addition to the approaches discussed at the 22 September 2009 Board Meeting:

  • Effective interest rate (EIR) collar approach, which would involve determining on transition a new effective interest rate on the basis of the expected cash flows over the remaining life of the financial instrument that would be subject to a floor (the risk free interest rate) and a ceiling/cap (the contractual interest rate).
  • EIR margin adjustment approach, whose objective was to determine an adjustment to the EIR under IAS 39 that resulted in an adjusted EIR that approximated the EIR that would have been determined under the expected cash flow approach.

The Board agreed that EIR collar approach would be too complex and challenging to implement. The Board was split between the customised transition approach discussed during the last meeting (that would lead to a reduction of reserves and increasing interest income over the remaining life of the instrument) and EIR margin adjustment approach (that would be more challenging to implement). The Board decided to include both approaches in the invitation to comment in the forthcoming ED.

The Board discussed the proposed effective date of the new standard (1 January 2014). The Board tentatively agreed to propose this date in the ED. The Board decided to propose that full comparative information should be provided. Some Board members noted that such a decision might delay the effective date even further. The Board decided that early application was to be allowed. Nonetheless, some Board members were concerned about comparability of the data across reporting entities given the long lead time until adoption.

A FASB member informed the meeting that the FASB would prefer to wait to finalise the impairment approach for its ED based on the forthcoming Expert Advisory Panel recommendations and suggested that, given the 2014 expected effective date, the Boards could discuss a possible converged solution to impairment before the Standard was finalised. The IASB Chairman referred to the political sensitivities and the commitment of IASB to publish its ED in October. Nonetheless, he suggested that based on responses of constituents to the ED and Expert Advisory Panel recommendations a converged final standard would be discussed as part of re-deliberations.

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