We comment on IASB's derecognition exposure draft

  • Deloitte Comment Letter Image

30 Jul 2009

Deloitte has submitted comments on the IASB Exposure Draft Derecognition - Proposed Amendments to IAS 39 and IFRS 7.

We support the objective of the ED to change the existing derecognition requirements in IAS 39 to a more robust model based on a single principle for derecognising financial assets. Overall, however, we do not support the model proposed in the ED; rather our preference is for a modified alternative approach that in some respects is a combination of the proposed approach and the alternative approach described in the appendix to the ED. Below is an excerpt from our letter. Click to download Our Letter of Comment (PDF 198k). All past letters comment are Here.

Our preferred approach is closer to the alternative approach with the significant difference that if a transferor retains control over certain rights to cash flows under the transferred asset that those cash flows are not included in the derecognition assessment, i.e. they continue to be recognised. A detailed description of our preferred model is contained in our response to Question 7, however, in summary:

  • We support a derecognition model based on control. However, our preference is that the assessment of whether the transferor has given up control of the asset should be performed from the perspective of the transferor, i.e. based on their ability to control the rights to cash flows under the asset, rather than as proposed in the ED that control by the transferor is assessed by determining what the transferee potentially may or may not do with the transferred asset.
  • If the transferor retains control over certain rights to cash flows but surrenders control over other rights to the cash flows of the transferred financial asset, the rights surrendered should be derecognised and the rights retained should continue to be recognised by the transferor. This compares to the ED where in many instances the ED would result in the transferor failing derecognition, thereby continuing to recognise the transferred asset when its involvement in the asset may be different to its original involvement, and may not meet the definition of an asset in the Framework or the definition of a financial asset in IAS 39. We struggle to see why the transferor should continue to recognise an asset as if it controls all the same rights to cash flows in the original asset when its rights have changed and some of its original rights are controlled by the transferee.
  • Where the entity transfers an asset and as part of the transfer arrangement retains an interest in the cash flows of the asset, the transferred asset that shall be assessed for derecognition should be the net interest in the cash flows that are transferred to the transferee. We believe this approach can apply to instances where the transferor retains a proportionate or disproportionate share in the interest in the cash flows of the transferred asset. We do not believe it is appropriate that the ED will have the effect of failed derecognition for all arrangements whereby the transferor retains a disproportionate share of cash flows in the asset.


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