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Feedback Statement Amends IFRS 7.Indd October 2010 Project Summary and Feedback Statement Transfers of Financial Assets Amendments to IFRS 7 Financial Instruments: Disclosures At a Glance We, the International Accounting The amendments will also make it Standards Board (IASB), amended easier to assess whether an entity has IFRS 7 Financial Instruments: Disclosures undertaken transactions to achieve a in October 2010 by issuing Transfers of particular accounting result close to Financial Assets. the end of a fi nancial period—so-called The objective of the amendments is to ‘window dressing’. improve the quality of the information IFRS 7 does not prevent entities from reported about: disclosing the type of information • fi nancial assets that have been these amendments will require. But ‘transferred’ but are still, at least it is clear that users of fi nancial partially, recognised by the entity statements, and other interested because they do not qualify for parties, think the quality of disclosures derecognition; and has not been adequate. These amendments address those concerns. • fi nancial assets that are no longer recognised by an entity, because they qualify for derecognition, but with which the entity continues to have some involvement. 2 | TransfersTransfers of Financial AssetsAssets Background These amendments to IFRS 7 are designed to improve The amendments also result in a closer alignment Unfortunately, the global fi nancial crisis forced the the transparency of off balance sheet securitisations of IFRSs and US generally accepted accounting two boards to take separate strategies to improve our and similar transfer transactions. principles (GAAP) disclosure requirements for respective requirements. transferred fi nancial assets. We are responding to requests from users of fi nancial In March 2009 we published an exposure draft statements, regulators—including the Financial We have been considering the derecognition proposing improvements to the derecognition Stability Board—and others. Before fi nalising the requirements in IAS 39 Financial Instruments: requirements in IAS 39 and associated disclosure new requirements we considered over 120 comment Recognition and Measurement since April 2005, when we requirements in IFRS 7. The amendments to letters, had over 50 meetings with interested added this topic to our research agenda. IFRS 7 that we are issuing now come from that parties and discussed the proposals with prudential exposure draft. In 2006 the project was included in our convergence regulators. Round tables were held in Toronto, plan with the US Financial Accounting Standards In parallel with the IASB developing the proposals, Tokyo and London. Board (FASB), to address the differences between the FASB took more urgent steps to address problems IFRSs and US GAAP requirements. with US GAAP, principally to eliminate the concept of a Qualifying Special Purpose Entity (QSPE). The FASB fi nalised those improved requirements in June 2009, which reduce the differences in accounting outcomes between IFRSs and US GAAP. Transfers of Financial Assets | 3 Feedback Statement Scope An entity that has transferred fi nancial assets will be How extensive do we expect the required to disclose information that enables users of disclosures to be? The new disclosure requirements apply only to its fi nancial statements: transferred fi nancial assets. Each entity will need to assess how it will meet the • to understand the relationship between transferred disclosure objectives. However, we do not anticipate Who is affected? fi nancial assets that are not derecognised in their that the requirements will signifi cantly affect the entirety and the associated liabilities; and Financial institutions will be the main types of entity size of most annual reports. IASB staff believe that • to evaluate the nature of, and risks associated affected by the new requirements. an entity with extensive fi nancial asset transfers with, the entity’s continuing involvement in should be able to meet the disclosure objectives and What are the requirements? derecognised fi nancial assets. explain the risks associated with those transfers in IFRS 7 currently requires an entity to disclose Entities must also provide additional disclosures two or three pages. limited information on transfers of fi nancial assets if transfer activity is not evenly distributed (principally for transferred assets which did not in a reporting period (eg if transfer activity qualify for derecognition in their entirety). is concentrated around the end of reporting The amendments enhance existing required periods). This requirement addresses concerns over disclosures for transferred fi nancial assets that are ‘window-dressing’ of the balance sheet. not derecognised, and require additional disclosures on an entity’s continuing involvement in derecognised assets. 4 | Transfers of Financial Assets Feedback from respondents Scope Respondents’ comments Our response Some respondents questioned why the proposals We proposed the disclosures in response to We acknowledge that the argument advanced by differentiated between assets or liabilities that widespread calls from investors, regulators and some respondents that the requirements should not result from transferring a fi nancial asset (such as others to improve the information about the effects differentiate between those assets or liabilities that a right or obligation to repurchase the transferred of transfer transactions in the situation that the are a consequence of transferring fi nancial assets and asset at a future date) and equivalent rights or transferor retained some continuing interest or those acquired separately. However, we believe that obligations acquired separately. They noted that exposure to the transferred asset. the fi nalised disclosures respond directly to a valid the proposals would lead to different disclosure information need of investors and others. In our discussions with investors, both before and requirements depending on how the assets or after publication of the exposure draft, it has been liabilities were initiated. clear that they lacked information about the effects of transfer transactions when the transferor retains some residual exposure to the transferred assets. During the global fi nancial crisis, many investors were concerned that they were unable to understand the possible future effects of continuing involvement in a transferred asset. Such a possible effect could include a right or obligation of the transferor to repurchase the transferred asset at a future date, which could have signifi cant implications for the future cash outfl ows and liquidity position of the transferor. The fi nalised disclosures allow investors to identify and analyse those possible effects. Transfers of Financial Assets | 5 Feedback from respondents continued Disclosure objectives Excessive disclosures Guidance The exposure draft proposed two new disclosure The exposure draft proposed disclosure of the fair Some respondents asked that the IFRS should objectives. Generally, respondents supported those value of derecognised assets when the transferor has include guidance about the type of information that objectives, but suggested some improvements to how continuing involvement in the transferred assets. would be relevant for different types of continuing those objectives should be written. involvement (for example, servicing and repurchase Some respondents said that this information would option agreements). Some respondents also emphasised the importance of provide little or no useful information to investors, ensuring that the disclosure objectives are positioned and would be onerous to apply. We agreed that adding guidance to the IFRS prominently in any fi nal requirements. Those After considering the comments from respondents, would improve the proposals. Accordingly, the respondents observed that high quality reporting and of investors in our outreach activities, we amendments includes guidance about how to comes from meeting the objectives rather than decided that the disclosures proposed would categorise the disclosures on the basis of the type of complying with a disclosure checklist. be onerous and would not provide information continuing involvement. We agreed with both points. suffi ciently useful to justify the burden of obtaining the information. We improved the drafting and the objectives are positioned prominently in the fi nal requirements. 6 | Transfers of Financial Assets Next steps The exposure draft published in March 2009 included When we reviewed our agenda in May 2010, The next steps in the project are: proposals to improve the derecognition requirements and prioritised the major projects with the • We will relocate the derecognition requirements of IAS 39. Two models were presented, a primary FASB, we amended our plans for improving currently in IAS 39 into IFRS 9 Financial Instruments. view and an alternative view. derecognition requirements. The requirements will be unchanged. We will The primary view was not well supported. We decided that the most pragmatic and effective complete this step before the end of 2010. Instead, there was qualifi ed support for the way of improving the fi nancial reporting of • We will continue to monitor the accounting alternative model and respondents encouraged us derecognised fi nancial assets was to address the and reporting of transferred fi nancial assets and to develop that model further. At the same time, disclosure defi ciencies that have been identifi ed. liabilities, particularly in the light of the recent our extensive
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