transferor’s continuing involvement.
However, the derecognition criteria in IFRS 9 are sometimes applied to specified parts
of a financial asset (or group of similar financial assets). For example, an entity might
transfer a proportion of an entire financial asset, such as 50% of all cash flows on a bond.
Similarly, it may transfer specified cash flows from a financial asset, such as all the
coupon payments or only the principal payment on a bond, commonly known as an
interest strip and principal strip respectively. Further, if the derecognition criteria are
met, it is possible for the specified parts of the financial asset to be derecognised whilst
the remainder of the asset remains on the statement of financial position (see
Chapter 48, particularly at 3.3). This begs the question of whether the disclosure
requirements in this section should be applied to such transfers.
Whilst the financial asset has not been derecognised in its entirety, it will normally be
the case that the asset has not been transferred in its entirety either. Therefore, it might
seem more appropriate for the disclosure requirements to follow the way in which the
derecognition requirements of IFRS 9 have been applied, i.e. they should focus on the
specified part of the asset that has been transferred. Nevertheless, in the absence of
specific guidance, we believe the alternative view could be supported too so that the
disclosures would address the entire asset.
In our view these disclosure requirements do not apply where an entity provides non-
cash financial assets as collateral to a third party and the transferee’s right to control the
asset (normally evidenced by its ability to resell or repledge those assets) is conditional
on default of the transferor. Instead the disclosures about collateral set out at 4.4.6
above would apply.
4234 Chapter 50
The following example illustrates how an entity might meet the quantitative disclosure
requirements in (d) and (e) above. [IFRS 7.IG40C].
Example 50.12: Quantitative disclosures for transferred assets not fully derecognised
Financial assets at fair value
Financial assets at
Equity
through profit or loss
amortised cost
investments
designated at
fair value
through OCI
CU million
CU million
CU million
Trading
Consumer
Equity
securities
Derivatives
Mortgages
loans
investments
Carrying amount of assets
X
X
X
X
X
Carrying amount of
associated liabilities
(X)
(X)
(X)
(X)
(X)
For those liabilities that
have recourse only to the
transferred assets:
Fair value of assets
X
X
X
X
X
Fair value of associated
liabilities (X)
(X)
(X)
(X)
(X)
Net position
X
X
X
X
X
6.3
Transferred financial assets that are derecognised in their
entirety
An entity may have transferred financial assets in such a way that they are derecognised
in their entirety but the entity has ‘continuing involvement’ in those assets. Where this is
the case, the additional disclosures set out at 6.3.2 below should be given. In this context,
the term continuing involvement has a different meaning to that used in the derecognition
requirements of IFRS 9 (see Chapter 48 at 3.2 and 5.3) which is discussed at 6.3.1 below.
In practice the application of these requirements might be limited given that few
transfers with any form of continuing involvement (as that term is used here) will qualify
for full derecognition. One example is a transfer of a readily obtainable financial asset
subject to a call option that is neither deeply in the money nor deeply out of the money
(see Chapter 48 at 4.2.3.A), but others could certainly be encountered in practice.
6.3.1
Meaning of continuing involvement
In this context, continuing involvement arises if, as part of the transfer, the entity retains
any of the contractual rights or obligations inherent in the transferred financial asset or
obtains any new contractual rights or obligations relating to it. [IFRS 7.42C].
For example, a financial asset transferred subject only to either (a) a deeply out of the
money put option granted to the transferee or (b) a deeply out of the money call option
retained by the transferor would be derecognised. This is because substantially all the
risks and rewards of ownership have been transferred. [IFRS 9.B3.2.16(g)]. However, the put
or call option would constitute continuing involvement in the asset.
Financial
instruments:
Presentation and disclosure 4235
Similarly, a readily obtainable asset transferred subject to a call option that is neither
deeply in the money nor deeply out of the money would also be derecognised. This is
because the entity has neither transferred nor retained substantially all of the risks and
rewards of ownership and has not retained control. [IFRS 9.B3.2.16(h)]. However, the call
option would constitute continuing involvement in the asset.
The following do not constitute continuing involvement for these purposes: [IFRS 7.42C]
(a) normal representations and warranties relating to fraudulent transfer and concepts
of reasonableness, good faith and fair dealings that could invalidate a transfer as a
result of legal action;
(b) forward, option and other contracts to reacquire the transferred financial asset for
which the contract price (or exercise price) is the fair value of the transferred
financial asset; or
(c) an arrangement whereby an entity retains the contractual rights to receive the cash
flows of a financial asset but assumes a contractual obligation to pay the cash flows
to one or more entities in a ‘pass-through arrangement’ (see Chapter 48 at 3.5.2).
An entity does not have a continuing involvement in a transferred financial asset if, as
part of the transfer, it neither retains any of the contractual rights or obligations inherent
in the transferred financial asset nor acquires any new contractual rights or obligations
relating to the transferred financial asset. Also, an entity does not have continuing
involvement in a transferred financial asset if it has neither an interest in the future
performance of the transferred financial asset nor a responsibility under any
circumstances to make payments in respect of the transferred financial asset in the
future. The term ‘payment’ in this context does not include cash flows of the transferred
financial asset that an entity collects and is required to remit to the transferee. [IFRS 7.B30].
When an entity transfers a financial asset, it may retain the right to service that financial
asset for a fee, e.g. by entering into a servic
ing contract. Such a contract should be assessed
in accordance with the guidance above to determine whether it gives rise to continuing
involvement for the purposes of these disclosures. For example, a servicer will have
continuing involvement in the transferred financial asset if the servicing fee is dependent on
the amount or timing of the cash flows collected from the transferred financial asset.
Similarly, the right to a fixed fee that would not be paid in full as a result of non-performance
of the transferred financial asset would also represent continuing involvement. This is
because the servicer has an interest in the future performance of the transferred financial
asset. Any such assessment is independent of whether the fee to be received is expected to
compensate the entity adequately for performing the servicing. [IFRS 7.B31].
An entity might transfer a fixed rate financial asset and at the same time enter into an
interest rate swap with the transferee that has the same notional amount as the transferred
asset. If payments on the swap are not conditional on payments being made on the
transferred financial asset and the notional of the swap is not linked to the notional
amount of the loan this would not, in our view, represent continuing involvement.
The assessment of continuing involvement in a transferred financial asset should be made
at the level of the reporting entity. For example, a subsidiary may transfer to an unrelated
third party a financial asset in which the parent of the subsidiary has continuing
involvement. In the subsidiary’s stand-alone financial statements the parent’s involvement
4236 Chapter 50
should not be included in the assessment of whether the reporting entity (the subsidiary)
has continuing involvement in the transferred asset. However, in the parent’s consolidated
financial statements, its continuing involvement (or that of another member of the group)
in a financial asset transferred by its subsidiary would be included in determining whether
the group has continuing involvement in the transferred asset. [IFRS 7.B29].
Continuing involvement in a transferred financial asset may result from contractual
provisions in the transfer agreement or in a separate agreement with the transferee or a
third party entered into in connection with the transfer. [IFRS 7.B31]. In our view it would
not encompass arrangements entered into some time after the financial asset was
transferred that were not contemplated at the time of the transfer.
6.3.2 Disclosure
requirements
When an entity derecognises transferred financial assets in their entirety but has
continuing involvement in those assets, it should disclose, as a minimum, the following
for each type of continuing involvement at each reporting date: [IFRS 7.42E]
(a) the carrying amount of the assets and liabilities that are recognised in the entity’s
statement of financial position and represent the entity’s continuing involvement
in the derecognised financial assets, and the line items in which the carrying
amount of those assets and liabilities are recognised;
(b) the fair value of the assets and liabilities that represent the entity’s continuing
involvement in the derecognised financial assets;
(c) the amount that best represents the entity’s maximum exposure to loss from its
continuing involvement in the derecognised financial assets, and information
showing how the maximum exposure to loss is determined;
(d) the undiscounted cash outflows that would or may be required to repurchase
derecognised financial assets (e.g. the strike price in an option agreement) or other
amounts payable to the transferee in respect of the transferred assets.
If the cash outflow is variable then the amount disclosed should be based on the
conditions that exist at each reporting date;
(e) a maturity analysis of the undiscounted cash outflows that would or may be
required to repurchase the derecognised financial assets or other amounts payable
to the transferee in respect of the transferred assets, showing the remaining
contractual maturities of the entity’s continuing involvement.
This analysis should distinguish between cash flows that are required to be paid
(e.g. forward contracts), cash flows the entity may be required to pay (e.g. written
put options) and cash flows the entity might choose to pay (e.g. purchased call
options). [IFRS 7.B34].
Financial
instruments:
Presentation and disclosure 4237
Entities should use judgement to determine an appropriate number of time bands
in preparing the maturity analysis. For example, it might be determined that the
following maturity time bands are appropriate: [IFRS 7.B35]
(i) not later than one month;
(ii) later than one month and not later than three months;
(iii) later than three months and not later than six months;
(iv) later than six months and not later than one year;
(v) later than one year and not later than three years;
(vi) later than three years and not later than five years; and
(vii) more than five years.
If there is a range of possible maturities, the cash flows should be included on the
basis of the earliest date on which the entity can be required or is permitted to pay;
[IFRS 7.B36] and
(f) qualitative
information
that explains and supports the quantitative disclosures set
out in (a) to (e) above.
This should include a description of the derecognised financial assets and the
nature and purpose of the continuing involvement retained after transferring those
assets. It should also include a description of the risks to which an entity is exposed,
including: [IFRS 7.B37]
(i) a description of how the entity manages the risk inherent in its continuing
involvement in the derecognised financial assets;
(ii) whether the entity is required to bear losses before other parties, and the
ranking and amounts of losses borne by parties whose interests rank lower
than the entity’s interest in the asset (i.e. its continuing involvement in the
asset); and
(iii) a description of any triggers associated with obligations to provide financial
support or to repurchase a transferred financial asset.
The types of continuing involvement into which these disclosures and those referred to
below are analysed should be representative of the entity’s exposure to risks. For
example, the analysis may be given by type of financial instrument (e.g. guarantees or
call options) or by type of transfer (e.g. factoring of receivables, securitisations and
securities lending). [IFRS 7.B33].
If an entity has more than one type of continuing involvement in respect of a particular
derecognised financial asset the information above may be aggregated and reported
under one type of continuing involvement. [IFRS 7.42F].
4238 Chapter 50
The following example illustrates how an entity might meet the quantitative disclosure
requirements in (a) to (e) above. [IFRS 7.IG40C].
Example 50.13: Quantitative disclosures for transferred assets fully derecognised
Cash outflows to
repurchase
transferred
Carrying amount o
f continuing
Fair value of
Maximum
(derecognised)
involvement in statement of financial
continuing
exposure to
assets
position
involvement
loss
CU million
CU million
CU million
CU million
Debt
instru-
ments at
Financial
Type of
fair value
liabilities at fair
continuing
Held for
through
value through
involvement
trading
OCI
profit or loss
Assets
Liabilities
Written put
(X)
(X)
(X)
X
options
Purchased call
(X) X
X
X
options
Securities
(X) X
(X) X (X)
X
lending
X X
(X) X (X) X
Undiscounted cash flows to repurchase transferred assets
Maturity of continuing involvement
CU million
Type of
Total less
than 1-3 months 3-6 months
6 months-
1-3 years
3-5 years
more than
continuing
1 month
1 year
5 years
involvement
Written put
X X X X X
options
Purchased call
X
X X X X
options
Securities
X
X
X
lending
In addition to the information above, the following should be disclosed for each type of
continuing involvement: [IFRS 7.42G]
(a) the gain or loss recognised at the date of transfer of the assets.
Disclosure should also be given if a gain or loss on derecognition arose because the
fair values of the components of the previously recognised asset (i.e. the interest in
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 839
