IASB January 2009

The Board resumed its discussion of the two approaches to derecognition originally presented at the Board’s joint meeting with the US Financial Accounting Standards Board in October 2008. The Board made the following tentative decisions:

for Approach 1:

• To modify the derecognition test to focus on whether the transferor presently has access to the cash flows or other future economic benefits of the financial asset it recognised before the transfer. An accounting outcome of applying the derecognition test is that a transfer of a component of an equity investment may qualify for derecognition.
• To treat as a new financial asset (rather than as a part of the financial asset that the transferor recognised before the transfer) the component of a financial asset or group of financial assets retained in a transfer that qualifies for derecognition.

To treat as a new asset an investment that a transferor purchases from a transferee securitisation vehicle.

for Approach 2:

• For a transfer of a part of a derivative, a hybrid instrument with an embedded derivative that requires bifurcation or an equity instrument, to assess the part (rather than the entire instrument) for derecognition only if it involves specifically identified and/or proportionate cash flows. As a result, if a transferred part of a financial instrument can be either an asset or a liability over its life (eg an interest rate swap) or involves future economic benefits other than cash flows (eg an equity investment), it will not qualify for derecognition.
• To allow transferred financial assets to be evaluated for derecognition as a group, but not allow any of those assets to be instruments that can be either assets or liabilities over their life (eg interest rate swaps) or that involve future economic benefits other than cash flows (eg equity investments).
• In a transfer that qualifies for derecognition, to treat the retained component of a financial asset or group of financial assets as a retained part of the financial asset recognised before the transfer (rather than as a new asset).
• To treat as a new asset an investment that a transferor purchases from a transferee securitisation vehicle.  
• To disclose in the notes (rather than in the statement of financial position) the relationship between a transferred financial asset that does not qualify for derecognition and the associated liability, if the transferee’s only recourse is to the transferred asset rather than to the transferor.

The Board will continue its discussion in February and expects to publish an exposure draft in March or April 2009.