Responses to the IASB exposure draft regarding prepayment features with negative compensation

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29 May 2017

The comment deadline on the IASB's exposure draft ED/2017/3 'Prepayment Features with Negative Compensation (Proposed amendments to IFRS 9)' has ended. The majority of stakeholders' responses are negative, but for different reasons.

The responses to ED/2017/3 seem to fall into three major categories (the links below are to individual submissions on the IASB's website or each submitting organisation's website):

  • Those who believe that there never was an issue with IFRS 9. Among these is the German standard-setter ASCG who states: "Generally speaking, a majority of our Committee members is of the view that IFRS 9 would not have required any changes. These members do not share the view that IFRS 9.B4.1.11(b) excludes financial instruments with symmetric prepayment features comprising potentially “negative” compensation." The South African Institute of Chartered Accountants (SAICA) joins the statement: "[W]e do not believe an exception is required for this but merely a clarification or additional guidance." And the South Korean standard-setter KASB adds: "[C]oncerns have been raised about whether those suggested cases are common and widespread enough to require an amendment."
  • Those who believe that changes to IFRS 9 are needed, but the approach is wrong/might have unintended consequences . The French standard-setter ANC notes: "ANC is still convinced that an alternative solution, i.e. clarification, is worth being contemplated in order to provide a simpler and also immediately applicable solution." The UK standard-setter FRC notes a "not convincing" rationale regarding the exclusion of fiinancial asset where the fair value of the prepayment feature is not insignificant. And the Institute of Chartered Accountants in England and Wales (ICAEW) states: "We are not, however, supportive of the IASB’s proposed solution, which is overly complex, introduces unwelcome asymmetry and could result in unintended consequences." Deloitte joins the group of sceptical voices and raises "concerns with the way the amendment is structured and drafted".
  • Those who believe that changes to IFRS 9 might be warranted, but the timing is wrong. The Japanese standard-setter ASBJ is "gravely concerned" regarding the comment period of 30 days and believes that with the effective date of IFRS 9 approaching any amendment to IFRSs should be very limited in scope. And the European Securities and Markets Authority (ESMA) notes that it "has serious concerns about [the] purpose and timing" of the proposed amendments and would consequently suggest "that the IASB better articulates why it decided to propose these amendments at this particular point in time, as the mandatory application of IFRS 9 is just a few months away". The Canadian standard-setter AcSB adds: "We are also very concerned that modifying IFRS 9 within a few months before the effective date can negatively affect the implementation efforts of preparers, auditors and users of the financial statements." EFRAG notes that the timing problems can be mitigated to a certain degree by a different effective date: "EFRAG recommends that the IASB change the effective date to 1 January 2019, with early application permitted, rather than the date proposed in the Amendments. This is in order to provide more time for Europe's and other jurisdictions' translation and/or endorsement processes and to address the concerns of SEC-filers."

The IASB is in the process of posting all responses to the exposure draft to its website.

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