IASB November 2008

• For transfers involving a part of a financial asset, the following item would be assessed for derecognition:

• ‘Continuing involvement’ in a transferred financial asset or component thereof (the Asset) represents retention of any contractual rights or contractual obligations inherent in the Asset or the acquisition of any new contractual rights or contractual obligations relating to the Asset
  (eg any interest in the future performance of the Asset or a responsibility to make payments in the future in respect of the Asset under any circumstances). Continuing involvement may result from contractual provisions incorporated in the transfer agreement itself or a separate agreement with the transferee or a third party entered into in connection with the transfer. Continuing involvement would not include standard representations and warranties, fiduciary/agency servicing, fair value forwards and fair value options
• For a transferee to have the practical ability to transfer a financial asset purchased from a transferor, it must be in a position immediately after the purchase to transfer the asset to a third party unilaterally without having to impose additional restrictions on that transfer. Determining whether a transferee has the practical ability to transfer a financial asset requires judgment considering all the relevant facts and circumstances.
• The transferor would not reassess ‘practical’ ability in subsequent periods, except in some cases (such as when an option is exercised or expires) when the transferee subsequently acquires the practical ability to transfer the asset to a third party.
• The derecognition tests would be applied from the perspective of the transferee, not the perspective of the transferor. The Board asked the staff to illustrate whether Approach 1 might be improved by adopting the perspective of the transferor.

The Board will discuss further issues at its meeting in December, and expects to issue an exposure draft in the first half of 2009.