IAS 39 – Accounting for repo transactions

Date recorded:

The project manager gave an overview of Agenda Paper 12: Accounting for term-structured repo transactions. The IFRS Interpretations Committee (IFRS IC) had received a request to clarify whether an entity should account for three non-derivative transactions separately as non-derivatives or in aggregate as a derivative (‘Issue 1’) and how to apply IAS 39.IG.B.6 in addressing Issue 1 (‘Issue 2’). He said that the IFRS IC had received five comment letters on the tentative agenda decision. Three of the respondents agreed with the agenda decision while two of the respondents disagreed. One of the disagreeing comment letters said that the submission provided sufficient information for the Committee to reconsider. The project manager therefore recommended deleting the sentence from the tentative agenda decision, where it said that the IFRS IC cannot assess the issue because the fact pattern had not provided enough context or detail. He said that this might be misleading and that instead the problem would be that the IFRS IC did not comment on specific transactions. Both disagreeing respondents asked for more guidance concerning synthetic derivatives in the Standard, however the project manager thinks that this would be beyond the IFRS IC’s scope. One of the agreeing comment letters proposed to add a paragraph to the agenda decision that should deal with the meaning of “substantive business purpose” in IAS 39.IG.B.6. The project manager said that an addition of this paragraph could be read as an addition to the Implementation Guidance which would need to be discussed in a different project. The project manager therefore recommended finalising the agenda decision on this basis.

The chairman stressed that it was not the IFRS IC’s purpose to do product design.

One Committee member said that there was significant diversity in practice with regards to synthetic derivatives and asked the Committee whether this would be tolerated if the IFRS IC decided not to address this issue.

Another IFRS IC member said that he agreed with the final words of the agenda decision and showed sympathy for the commentators who wanted to add more prescriptive and detailed guidance on synthetic derivatives. However, he said, more detailed guidance would change the broad anti-abuse purpose of IAS 39.IG.B.6 as it would be easier to work around those specific requirements. One IFRS IC member agreed with the anti-abuse purpose and asked whether there was another way for the Committee to help the regulators.

One observer said that the Implementation Guidance was not endorsed in Europe and asked the Committee if they wanted to address some of the issues with the IASB. Another observer agreed and said that this guidance should be moved to the Standard.

One Committee member agreed with the staff recommendation to finalise the agenda decision. However, he had some trouble with the phrase “[…] reference may be made to paragraphs B.6 and C.6 of Guidance on Implementing IAS 39 […]”. He said that in absence of any other literature on this topic, he would like to change the word “may” in the proposed agenda decision to “should”. One IFRS IC member said that he was not sure if entities can be forced to apply the Implementation Guidance. The chairman asked whether it would be permissible to ignore it as it was the only guidance in this respect. The Committee had a discussion about how authoritative the Implementation Guidance was and agreed on changing the wording to “should”.

One IASB member asked what would happen with the Implementation Guidance once IAS 39 was replaced.  One of the project managers replied that those issues would be looked into one by one to see how far they had been incorporated in IFRS 9.

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