At this meeting, the Board continued its deliberations of the feedback received on the Derecognition exposure draft (ED) published in March 2009. The Board made the following tentative decisions:
- The next due process document for derecognition of financial instruments will not provide a transfer definition, but it will provide application guidance to address the concerns raised by respondents to the ED with respect to that definition.
- The term 'economic benefits', as that term is used in the proposed derecognition approach, encompasses both the economic benefits associated with the financial and non-financial components of a contract within the scope of IAS 39, provided that the economic benefits associated with the nonfinancial component of the contract have not separately been recognised. Consequently if an entity sells the non-financial right (and hence the associated economic benefits), it will derecognise the entire financial asset, and will then recognise a new asset representing a right to only the economic benefits arising from the financial component.
- To make an exception to the derecognition criteria as it applies to sale and repurchase agreements and similar transactions. The exception requires that any sale of a financial asset that is accompanied by an agreement that entitles and obligates the entity to repurchase the asset before maturity of the asset should be accounted for as a secured borrowing (similar to the accounting for such transactions under FASB Statement No. 166, Accounting for Transfers of Financial Assets - an amendment of FASB Statement No. 140). The Board would seek to align the exception, to the extent feasible, with the 'effective control' guidance under FASB Statement No. 166.
The Board also discussed the application of the alternative derecognition approach to unit-linked insurance products, securitisation vehicles and pass-through arrangements, but did not make any tentative decisions.
The Board will continue its deliberations on the proposed derecognition approach at future meetings