IAS 39 — Accounting for embedded foreign currency derivatives in host contracts

Date recorded:

The project manager introduced Agenda Paper 12 (link to IASB's website) which relates to a request for guidance relating to the interpretation of the criterion ‘closely related’ in paragraph 11 of IAS 39 Financial Instruments: Recognition and Measurement to determine whether an embedded derivative should be separated from a host contract and accounted for as a derivative in accordance with IAS 39. The submission deals with a host contract that is denominated in a currency other than the functional currency of the submitter (or the functional currency of the counterparty) and contains an embedded foreign currency derivative that may or may not require separation under IAS 39. The staff conducted outreach activities which were summarised in the agenda paper. The staff concluded that the issue was not widespread and recommended not to include this issue on the agenda.


There was general agreement with the staff recommendation. Several IC members pointed out that the principle was clear from the standard. No significant comments or objections were raised.

One member pointed out that the situation should not be limited only to commodities.

One member expressed concern on the wording of paragraph 21 and 22 of the paper which seemed to imply that an entity needed to obtain evidence.

Another member asked whether the evaluation was the same for a global player and a small player. The Staff responded that it was not relevant, the standard discussed the commodity irrespective of who the player was.


The Chairman concluded that there was agreement with the staff recommendation subject to wording adjustments.

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