Post-implementation Review of IFRS 9

Date recorded:

Other matters raised in PIR feedback (Agenda Paper 3)

The IASB discussed feedback to the Request for Information (RFI) Post-implementation Review of IFRS 9 – Classification and Measurement since March 2022.

At this meeting, the IASB will discuss questions relating to matters raised by respondents to the RFI that are not covered by other staff papers presented to the IASB and the feedback from the July 2022 meeting of the Accounting Standards Advisory Forum (ASAF).

Questions related to matters raised at RFI not discussed in other papers

Derecognition of financial assets

A few respondents used the opportunity to raise long-standing questions regarding derecognition  requirements, including: clarifying which risks need to be considered when assessing whether ‘substantially all risks and rewards’ of a financial asset have been transferred; giving more application guidance on assessing whether an entity has retained control over the financial asset in case the entity neither transferred nor retained substantially all the risks and rewards; and to improve guidance on accounting for an entity’s ‘continuing involvement’.

In the staff’s view, the derecognition requirements have been applied to a wide variety of transactions over a long period, and the staff is not aware of any evidence that the derecognition criteria are not meeting the objective of providing useful information to users. Some ASAF members acknowledged that there is diversity in practice on certain questions but did not consider the issue to be a priority for the IASB to address. The staff recommend that no further action be taken on this as the matter is not widespread or expected to have a material effect.

Cash received via electronic transfer as settlement for a financial asset

A few respondents asked the IASB to consider the implications of the tentative decision of the Interpretations Committee on its agenda decision titled Cash Received via Electronic Transfer as Settlement for a Financial Asset. The respondents stated that it would have significant impacts on long-standing and established practice.

The staff note that similar comments were received by the Committee on their tentative agenda decision in September 2021 before finalising their decision in June 2022. As this matter is subject to the IASB’s decision on Agenda Paper 12A, the staff are not making any recommendations.

Contracts to buy and sell non-financial items

A few respondents asked for more guidance related to:

  • Assessing whether the entity has a practice of settling similar contracts net in cash when considering using the ‘own use exemption’
  • The ‘unit of account’ in applying the requirements for contracts to buy or sell a non-financial item
  • Accounting for a change in management’s intention for such a contract after initial recognition

The staff believe the requirements meet the objective of ensuring that contracts with the economic characteristics of a financial instrument are accounted for appropriately. Some ASAF members acknowledged that there is diversity in practice on some of these issues and that more guidance would be helpful. However, they did not consider the issues to be a priority for the IASB to address. The staff recommend that no further action be taken on this as the matter is not widespread or expected to have a material effect.

Equity investments and OCI—transaction costs

A few respondents noted that there is diversity on practice in the accounting for transaction costs on the disposal of equity instruments under OCI presentation election and in accounting for the difference between the fair value of the equity investment on the date of disposal and the transaction price.

The staff understand that the OCI presentation election requirements provide an adequate basis for an entity to determine the appropriate accounting treatment. Some ASAF members confirmed that there is diversity in practice in their jurisdictions but did not expect the matter to be widespread or have a material effect. The staff recommend that no further action be taken on this as the matter is not widespread or expected to have a material effect.

Financial assets and financial liabilities held for trading

A respondent asked for more guidance on the term “held for trading” to ensure consistent application, for instance structured liabilities issued by a bank to satisfy clients’ investment needs and a gradual reduction in an equity stake when the entity has the intention to sell the remaining stake.

The staff note that classifying an instrument as held for trading is part of the business model consideration as required in IFRS 9. In the staff’s view, IFRS 9 provides an adequate basis to determine whether a financial instrument is held for trading. The staff recommend that no action is taken on these items, as IFRS 9 provides an adequate basis to determine whether a financial instrument is held for trading.

Purchased or originated credit-impaired (POCI) financial assets

A few respondents asked for more guidance for applying the requirements relating to POCI financial assets in cases where derecognition and re-recognition of an existing exposure due a substantial modification in contractual cash flows take place and calculating the credit-adjusted effective interest rate (EIR) at the appropriate level of granularity in cases of purchasing a portfolio of consumer debt rather than individual exposures.

The staff do not believe that questions around the application of the credit-adjusted EIR can be analysed without considering the relevant impairment requirements. The staff therefore recommend that questions about POCI financial assets are considered as part of the upcoming PIR of the impairment requirements in IFRS 9.

Feedback from the July 2022 ASAF meeting

Contractual inflation adjustments and leverage

Some respondents questioned whether interest rates contractually linked to an index that adjusts the time value of money based on a market interest rate and/or inflation rate introduce ‘leverage’ in the context of recent significant rises in inflation rates.

The staff previously expressed the view that a contractual link to an unleveraged inflation index represents consideration for the time value of money on the principal amount outstanding. This view remains relevant regardless of the level of inflation. ASAF members confirmed that inflation-linked financial instruments are common in some jurisdictions, but they are not aware of widespread diversity in practice in assessing the contractual cash flow characteristics of these instruments. The staff therefore recommend that no further action is taken on this matter.

Regulated interest rates and leverage

Respondents asked whether rates including a leverage factor imposed by the government should follow IFRS 9 for regulated rates guidance and, if so, how to consider whether the rate provides exposure to risks or variability in the contractual cash flows that are inconsistent with a basic lending arrangement.

The staff previously noted that the feedback indicates that diversity in practice exists and that there could be a material effect in specific jurisdictions. The ASAF members reported that the issue is not widespread across jurisdictions and only appears to be prevalent in specific countries such as Hungary. The staff therefore believe that the application question does not meet the criteria for a submission to be made to the Interpretations Committee and recommends that no further action is taken on this matter.

The staff asked the IASB whether they agree with their recommendation as set out under each individual question above.

IASB discussion

IASB members were overall supportive of the staff suggestions related to the application questions. Two IASB members asked the staff to further explain why they have concluded that these matters are not widespread even if there are questions about it. The staff clarified that they have not receive evidence following the RFI that these issues are widespread. In addition, they asked the ASAF members for their view on all of these issues, which is that even if there are questions in isolated instances, they do not think that any of these issues are pervasive or that it would have a material effect on entities’ financial statements overall.

No decisions have been made.

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