The Financial Reporting Standards Council (FRSC) has issued an Invitation to Comment on an exposure draft of proposals to improve the derecognition requirements for financial instruments issued by the International Accounting Standards Board (IASB). The proposals will amend IAS 39, Financial Instruments: Recognition and Measurement, and IFRS 7, Financial Instruments: Disclosures. Derecognition is when an entity removes a financial instrument from its financial statements. This occurs if the entity no longer controls a financial asset or no longer has an obligation to settle a financial liability.
The IASB is also proposing to enhance disclosure requirements, especially in situations where an entity continues to have an ongoing involvement in a financial asset that would be derecognised under the proposals. The additional disclosures would allow users to make a better assessment of the risks associated with such an asset.
The proposals are part of the IASB’s comprehensive review of off balance sheet activities and follow the publication of proposals in December 2008 to strengthen and improve the requirements for identifying which entities a company controls, known as consolidation.
The use of special structures by reporting entities, particularly banks, to manage securitizations and other complex financial arrangements was highlighted as a matter of concern by the G20 leaders at their meeting in Washington, DC, in November 2008. The IASB’s comprehensive review of off balance sheet risk is a response to that concern.
Introducing the exposure draft, Sir David Tweedie, Chairman of the IASB, said:
This project has been on our agenda since before the financial crisis broke but the market turmoil has highlighted the urgency of the matter and we have accelerated our work. Financial structures have become increasingly complex and sophisticated, creating the need for improved ways of assessing whether an entity should derecognise assets or not. The financial crisis has also shown that users of financial statements require better information to understand any remaining risks related to assets that are off balance sheet. Our proposals are addressing these concerns.
The FRSC invites comments on the exposure draft by
15 July 2009. Comments may also be sent electronically through the open for comment section at
www.iasb.org on or before
31 July 2009, the IASB comment deadline.
The FRSC Invitation to Comment and the IASB exposure draft may be downloaded from the FRSC/PFRS website within the PICPA website at
www.picpa.com.ph. The exposure draft is also
available on the open for comment section at
www.iasb.org.