The Interpretations Committee received a request to clarify the requirements in IAS 39 and IFRS 9 relating to which fees and costs should be included in the ‘10 per cent’ test for the purpose of derecognition of a financial liability.
The Interpretations Committee observed the following:
- paragraphs AG62 of IAS 39 and B3.3.6 of IFRS 9 require an entity to include ‘any fees paid net of any fees received’ in the ‘10 per cent’ test when assessing whether the terms of an exchange or a modification of a financial liability are substantially different and lead to the derecognition of the original financial liability. Those paragraphs also include requirements regarding how to account for ‘any costs or fees incurred’ relating to the exchange or modification depending on whether that exchange or modification led to the derecognition of the financial liability.
- in considering the items to include in the calculation of the effective interest rate, IAS 39 and IFRS 9 distinguish between ‘fees and points paid or received between the parties to the contract’ and ‘transaction costs’. The Interpretations Committee noted that the objective of the ‘10 per cent’ test is to quantitatively assess the significance of any difference between the old and new contractual terms by analysing the effect of the changes in the contractual cash flows (ie the contractual cash flows between the lender and the borrower). Consequently, the ‘fees’ included in the ‘10 per cent’ test are similar to the ‘fees and points paid or received between the parties to the contract’ included in the calculation of the effective interest rate. In contrast, ‘any costs or fees’ incurred relating to an exchange or a modification have a similar nature to ‘transaction costs’ in that they are incremental costs directly attributable to the exchange or modification. Those costs or fees would not have been incurred if the entity had not exchanged or modified the financial liability.
On the basis of these observations, the Interpretations Committee noted that, when applying paragraphs AG62 of IAS 39 and B3.3.6 of IFRS 9 in carrying out the ‘10 per cent’ test, an entity includes only fees paid or received between the lender and the borrower or fees paid by, or on behalf of, the lender or the borrower.
In the light of the existing requirements in IFRS Standards, the Interpretations Committee determined that neither an Interpretation nor an amendment to a Standard was necessary. Consequently, the Interpretations Committee [decided] not to add this issue to its agenda.
