IFRS 1 — Fixed date in the derecognition exemption

Date recorded:

The Committee continued its discussion of an exception that IFRS 1 First-time Adoption of International Financial Reporting Standards provides from full retrospective application of the requirements for derecognition of financial assets and financial liabilities in IAS 39 Financial Instruments: Recognition and Measurement for transactions before 1 January 2004. The issue was discussed initially in March 2010.

The Committee had great sympathy to move to a 'relative date' approach in IFRS 1, rather than the fixed date of 1 January 2004, such that IFRS 1 would refer to 'date of transition to IFRS'. However, it was acknowledged that it was unlikely that the change could be implemented in time for those entities adopting IFRS in 2010.

On a related matter, the Committee discussed whether a similar accommodation should be made to IFRS 1.D20 (Fair value measurement of financial assets or financial liabilities at initial recognition /'day 1 differences'), which permits entities to apply prospectively the provisions of AG76 and AG76A of IAS 39 for transactions entered into after 25 October 2002, or 1 January 2004.

There was considerable disquiet about moving to a 'relative date' for such transactions-the Committee would be inviting structuring of transactions in anticipation of the move to IFRS in situations in which predecessor GAAP provided a 'more advantageous' financial reporting result. In addition, the Committee did not think it appropriate to write financial reporting standards in anticipation of an uncertain future event.

The Committee stressed that it and the IASB's derecognition team had to come to the same answer, and noted that the derecognition team was not in a position to inform the Committee on their position yet. The Committee did not conclude on this issue and will await developments in the derecognition phase of the IASB's financial instruments project.

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