This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our cookie notice for more information on the cookies we use and how to delete or block them.
The full functionality of our site is not supported on your browser version, or you may have 'compatibility mode' selected. Please turn off compatibility mode, upgrade your browser to at least Internet Explorer 9, or try using another browser such as Google Chrome or Mozilla Firefox.

IAS 39 — Accounting for different aspects of restructuring Greek Government Bonds: Review of tentative agenda decisions published in May 2012 IFRIC Update

Date recorded:

In April 2012, the Committee received a request for guidance on the accounting for several different aspects of the restructuring of Greek government bonds (GGBs). The principal issue raised was whether this transaction should result in derecognition of the whole asset, or only part of it, in accordance with IAS 39 Financial Instruments: Recognition and Measurement. In the fact pattern submitted, the relevant facts led the Committee to conclude that, in determining whether the transaction results in derecognition of the financial asset, both an assessment of extinguishment under paragraph 17(a) of IAS 39 as well as an assessment of a substantial change of the terms of the asset would result in derecognition of the whole asset.

In the May 2012 meeting, the Committee tentatively agreed with the staff analysis that the GGBs restructuring result in changes that could be considered an expiry of the rights to the cash flows of the original instrument or a substantial change of the terms of the financial asset. The Committee tentatively agreed not to add this item to its agenda.

A further issue raised was the request for guidance on the appropriate accounting for the GDP-linked security that was part of the restructuring of GGBs. The Committee did not opine on whether the indexation to the issuer’s GDP meets the definition of a derivative. However, the Committee concluded that if not regarded as a derivative, the GDP-linked securities are classified either as at fair value through profit or loss or as available for sale.

In the May 2012 meeting, the Committee tentatively decided not to add the issue of accounting for the GDP-linked security to its agenda. The Committee believes that the instrument falls within the scope of IAS 39 and would not meet the criteria for classification as either loans and receivables or held to maturity assets. Therefore the Committee believes that the instrument would be classified as available for sale unless one of the fair value through profit or loss criteria applied.

In the September 2012 meeting, the Committee was presented with proposed rejection wording which explains why the current standard leads to derecognition of Greek Government Bonds and regarding the GDP-linked securities the current standard provides guidance on the classification.

Eight comment letters were received on the tentative agenda decision relating to the derecognition of the Greek Government Bonds and all agreed with the conclusion (i.e., derecognition of the Greek Government Bonds). Four respondents requested further guidance on derecognition in the context of debt restructuring due to its relevance in the current economic environment where restructuring is significant and frequent. The staff note that from the outcome of the IASB’s derecognition project that it was completed without further clarification of the derecognition rules and only introduced further disclosure requirements. The staff noted that developing a new derecognition model for financial instruments goes beyond the type of issue that the Committee could address by way of an interpretation. The staff stated that if the Committee believes that more guidance on derecognising financial instruments should be provided, it should be brought to the IASB’s attention for its consideration.

A number of Committee comments were received that indicated that there was a need for further guidance especially around the issue of whether there is an expiry or modification.

The Chair asked the Committee members as to whether any of them objected to the tentative agenda decision as presented by the staff as written. There was one objection. The Chair also asked the Committee what their thoughts are on the staff analysing what a Committee project exploring the notion of expiry would encompass. Two members of the Committee agreed to this. The Chair agreed that this would be brought back to the Committee in the meeting after the next one. It was agreed that the current tentative agenda decision would not include a sentence indicating that this additional analysis will be conducted.

Five comment letters were received in relation to GDP-linked securities and respondents indicated that the issue be added to the Committee agenda or recommend to the IASB that it perform further work. The staff noted that this issue was on several previous occasions considered by the Committee and the IASB. The staff recommended that the Committee confirm the tentative agenda decision and that the Committee recommend to the IASB that they perform further work on the definition of a derivative.

A couple of Committee members agreed that the IASB should address this issue and all were in agreement with the tentative wording decision. In terms of referring the issue to the IASB, one Committee member asked whether a recommendation to the IASB would be made that they address the issue or highlight to the IASB that they have received comment letters identifying this issue.  One member objected to the wording within the agenda decision that the Committee is concluding that this is not a derivative as this is an assumption within the agenda decision rather than a conclusion. The Committee member expressed the view that one could conclude that this is a derivative.

The Chair proposed that a recommendation that the IASB perform further work on this would not be made. All Committee members agreed with the tentative agenda decision subject to minor word amendments and strengthening the [current] assumption that it is not a derivative.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.