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November 2015
STAFF PAPER
IFRS Interpretations Committee Meeting

Project IFRS 9 Financial Instruments/IAS 39 Financial Instruments:

Recognition and Measurement
Paper topic Derecognition of modified financial assets
CONTACT(S) Hannah King [email protected] +44 (0)20 7246 6961
Bernadette Whittick [email protected] +44 (0)20 7246 0552

This paper has been prepared by the staff of the IFRS Foundation for discussion at a public meeting of
the IFRS Interpretations Committee. Comments made in relation to the application of an IFRS do not
purport to be acceptable or unacceptable application of that IFRS—only the IFRS Interpretations
Committee or the IASB can make such a determination. Decisions made by the IFRS Interpretations
Committee are reported in IFRIC Update. The approval of a final Interpretation by the Board is reported
in IASB Update.

Introduction

1. The purpose of this paper is to consider whether the IFRS Interpretations

Committee (‘the Interpretations Committee’) should progress, at this time, its
consideration of a potential project to clarify the guidance in IFRS 9 Financial
Instruments (and IAS 39 Financial Instruments: Recognition and Measurement)
about when a modification or exchange of financial assets results in the
derecognition of the original asset.

2. The Interpretations Committee asked the staff to:

(a) investigate whether a sufficiently narrow-scope project to provide more

guidance on the derecognition of modified or exchanged financial
assets in IFRS 9 (and IAS 39) could be identified, which could then be
proposed to the IASB; and

(b) to informally sound out the IASB members’ thoughts on taking on such
a project at this time, if such a sufficiently narrow-scope project were to
be identified.

3. We carried out an initial analysis of the key technical considerations that might
arise when defining a narrow-scope project on the derecognition of modified or
exchanged financial assets.

The IFRS Interpretations Committee is the interpretative body of the IASB, the independent standard-setting body of the IFRS Foundation.
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4. In addition, we informally consulted most IASB members at various meetings to

obtain their individual views about whether to take on such a project at this time,
if a sufficiently narrow-scope issue were to be identified.

5. On the basis of the informal views expressed by individual IASB members and
our initial identification of the key considerations that might arise when defining
such a narrow-scope project, we recommend that the Interpretations Committee
should not pursue this issue at this time.

6. This paper sets out:

(a) the issue;

(b) background information;

(c) a summary of informal feedback from IASB members;

(d) a technical analysis that summarises:

(i) the impact of the possible derecognition of a modified or

exchanged financial asset; and
(ii) some of the key technical issues that may arise when
identifying whether narrow-scope guidance could be
developed; and

(e) the staff recommendation.

7. This paper does not analyse or attempt to identify an accounting solution to the
question about how to determine whether a modified or exchanged financial asset
is derecognised.

The issue

8. The Interpretations Committee has received, in connection with other more

specific issues, a few requests for more generic guidance in IAS 39 and IFRS 9 on
the derecognition of financial assets that have been modified or exchanged.

9. The Interpretations Committee considered that providing such generic guidance

would be too broad for the Interpretations Committee to deal with itself. In
addition, the Interpretations Committee acknowledged that this more general

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matter has been raised previously with the IASB, but that it had decided not to add
such a project to its agenda at that time (see paragraphs 28 and 32).

10. In response to the comments received, the Interpretations Committee asked the
staff to perform further analysis to identify whether an issue of sufficiently narrow
scope could be identified to be raised with the IASB. However, the
Interpretations Committee also asked the staff to informally sound out the IASB
members’ thoughts on taking on such a project at this time, if a sufficiently
narrow-scope issue were to be identified.

Background

11. In this section we look at:

(a) the derecognition guidance in IFRS 9 and IAS 39;

(b) relevant derecognition issues considered by the Interpretations

Committee;

(c) the IASB/FASB joint derecognition project; and

(d) requests for clearer guidance received to date.

Derecognition guidance in IFRS 9 and IAS 39

12. The derecognition requirements in IFRS 9 for both financial assets and financial
liabilities were brought forward from IAS 39 unchanged.

Derecognition of financial assets

13. The derecognition requirements for financial assets are set out in paragraphs
3.2.1-3.2.23 of IFRS 9 and paragraphs 15-37 of IAS 39.

14. The derecognition requirements for financial assets are complex and are
summarised in the decision tree that is reproduced in Appendix A.

15. All the steps summarised in the decision tree are important. However, in this
paper we refer to two particular aspects of the derecognition requirements (see
paragraphs 25-26 and 45-46). This is because the Interpretations Committee

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specifically considered these aspects during its discussions relating to the previous
requests for guidance.

16. The first aspect is that entities should consider whether the contractual rights to
the cash flows from the asset expire (paragraph 3.2.3(a) of IFRS 9/paragraph 17 of
IAS 39). If so, the asset should be derecognised.

17. Secondly, if the contractual rights to the cash flows have not expired, entities
should consider whether the entity transfers the financial asset (paragraphs
3.2.3(b)-3.2.5 of IFRS 9/paragraphs 17(b)-19 of IAS 39). 1 When an entity
transfers a financial asset, it shall evaluate the extent to which it retains the risks
and rewards of ownership of the financial asset. In this case:

(a) if the entity transfers substantially all the risks and rewards of
ownership of the financial asset, the entity shall derecognise the
financial asset and recognise separately as assets or liabilities any rights
and obligations created or retained in the transfer (paragraph 3.2.6(a) of
IFRS 9/paragraph 20(a) of IAS 39); but

(b) if the entity retains substantially all the risks and rewards of ownership
of the financial asset, the entity shall continue to recognise the financial
asset.

18. Unlike the derecognition requirements for financial liabilities, there is no specific
guidance in IFRS 9 or IAS 39 about whether financial assets that are modified or
exchanged should be derecognised.

Derecognition of financial liabilities

19. The derecognition requirements for financial liabilities are set out in paragraphs
3.3.1-3.3.4 of IFRS 9 and paragraphs 39-42 of IAS 39.

20. Paragraph 3.3.1 of IFRS 9 (paragraph 39 of IAS 39) states that an entity should
derecognise a financial liability (or part of it) when and only when it is

1
Paragraph 3.2.4 of IFRS 9 and paragraph 81 of IAS 39 state that an entity transfers a financial asset if, and
only if, it either: (a) transfers the contractual rights to receive the cash flows of the financial asset, or (b)
retains the contractual rights to receive the cash flows of the financial asset, but assumes a contractual
obligation to pay the cash flows to one or more recipients in an arrangement that meets the conditions in
paragraph 3.2.5 of IFRS 9 or paragraph 19 of IAS 39.

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extinguished–ie when the obligation specified in the contract is discharged or

cancelled or expires.

21. In addition, paragraph 3.3.2 of IFRS 9 (paragraph 40 of IAS 39) gives specific
requirements in respect of modifications and exchanges of financial liabilities
with the same lender, as follows:

3.3.2 An exchange between an existing borrower and

lender of debt instruments with substantially different terms
shall be accounted for as an extinguishment of the original
financial liability and the recognition of a new financial
liability. Similarly, a substantial modification of the terms of
an existing financial liability or a part of it (whether or not
attributable to the financial difficulty of the debtor) shall be
accounted for as an extinguishment of the original financial
liability and the recognition of a new financial liability.

22. Paragraph B3.3.6 of IFRS 9 (paragraph AG62 of IAS 39) introduces the concept
of a quantitative ‘10 per cent test’:

B3.3.6 For the purpose of paragraph 3.3.2, the terms are

substantially different if the discounted present value of the
cash flows under the new terms, including any fees paid
net of any fees received and discounted using the original
effective interest rate, is at least 10 per cent different from
the discounted present value of the remaining cash flows
of the original financial liability…

Interpretations Committee Agenda Decisions

23. The Interpretations Committee has considered two specific issues in connection
with the derecognition of exchanged financial assets.

24. The first was about whether holders of Greek Government Bonds (‘GGB’) should
derecognise the original GGBs on their exchange for different GGBs. See
Appendix B for the Interpretations Committee’s agenda decision as given in
IFRIC Update for September 2012.

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25. The Interpretations Committee considered whether the transaction should be

assessed as:

(a) an expiry (ie when the contractual rights to the cash flows from the
asset expire) (see paragraph 16); or

(b) a transfer (ie when the entity transfers the contractual rights to receive
the cash flows of the financial asset) (see paragraph 17).

26. The key conclusions reached by the Interpretations Committee, in this specific
case, were that:

(a) although ‘transfer’ is not defined in IFRS 9/IAS 39, the issue should be
assessed as an expiry of cash flows. This is because the transfer of the
original GGBs in exchange for the new GGBs were to the issuer,
instead of to a third party.

(b) either of the following approaches would lead to derecognition of the

original GGBs:

(i) as an expiry of cash flows in accordance with paragraph

17(a) of IAS 39 (paragraph 3.2.3(a) of IFRS 9); or
(ii) as a substantial change of the terms of the original GGBs,
by analogy to the requirements for modified financial
liabilities, as summarised in paragraph 21.

27. The second issue considered by the Interpretations Committee was about the
accounting by the holders of an equity instrument that was exchanged for a new
equity instrument issued by the same issuer. As noted in the IFRIC Update for
November 2014 (see Appendix C), the Interpretations Committee decided not to
add this specific issue to its agenda because the issue was not widespread and the
submitter had not identified significant diversity in accounting for the particular
transaction. Consequently, the Interpretations Committee did not analyse or
discuss how to account for that specific transaction.

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IASB/FASB joint derecognition project

28. The IASB has already undertaken a comprehensive derecognition project, jointly
with the FASB. In March 2009, the IASB published an Exposure Draft that
focussed on new proposals for the derecognition of (i) transfers of financial assets
and (ii) financial liabilities. However this project was curtailed in June 2010 and
the proposals were not taken forward, other than for the disclosures of transferred
assets. In making that decision, the IASB noted the feedback it had received from
national standard-setters on the largely favourable effects of the IFRS
derecognition requirements during the financial crisis.

Requests for clearer guidance

29. Requests for clearer guidance on the derecognition of modified or exchanged

financial assets have not arisen from any specific outreach by the IASB or the
Interpretations Committee. Instead, some comments have been received in
response to other matters, as noted below.

30. The Interpretations Committee received requests for more generic guidance for
modified financial assets from a few respondents to tentative agenda decisions in
respect of the two specific derecognition issues noted in paragraphs 23-27 (ie, in
respect of the exchange of Greek Government Bonds and an exchange of equity
instruments).

31. The reasons given by these respondents for calling for more guidance were that:

(a) respondents report that in the current economic climate there are more
frequent and significant debt restructurings taking place;

(b) the potential for diversity in practice, given that there is not much
guidance in IAS 39/IFRS 9; and

(c) addressing the wider issue would promote transparency, achieve

consistent application of IFRS and improve the enforceability of the
Standards.

32. In addition, many respondents to the IASB’s Exposure Draft

Financial Instruments: Expected Credit Losses, which was published in 2013,

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requested clarification on when a modification results in derecognition. However

a number of respondents noted that developing guidance in this area would be a
significant undertaking and urged that it should not delay the general impairment
model, but should instead be addressed as a separate project. At the time, the
IASB observed that this is a non-trivial question that is currently outside the scope
of the impairment project. Furthermore, the time and resources required to
develop such guidance would be substantial and could result in delaying finalising
of the impairment project if it were to be developed in parallel. Consequently, the
IASB decided not to develop further guidance on when a modification of a
financial asset results in derecognition within the confines of the IFRS 9
impairment project.

Informal feedback from IASB members

33. We consulted most IASB members at various meetings to obtain their individual
views on whether to take on such a project at this time, if a sufficiently narrow
scope issue were to be identified. We did not ask the IASB members to make any
decisions when we consulted them.

34. At those meetings we provided some background information and the staff’s
initial identification of the key technical considerations that might arise when
defining narrow-scope guidance on the derecognition of modified or exchanged
financial assets, as described in this paper. The primary focus of the IASB
members’ comments was not on the specific technical aspects identified by the
staff, but was instead on whether to take on such a project at this time.

35. The IASB members consulted were of the view that it would be better not to take
on a project about the derecognition of modified financial assets at this time,
although a few IASB members noted that this would be subject to the outcome of
the current Agenda Consultation. In summary, the main reasons given for such a
view were that:

(a) this is not a new issue, because the guidance for the derecognition of
financial assets has been around for a long time unchanged. Some

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IASB members observed that, up to now, assessments in practice have

been made based on the current guidance.

(b) there is little evidence of a need for more guidance.

(c) this is a very judgemental area and therefore there is a limit on what any
new guidance could achieve.

(d) it will be difficult to keep the scope of any amendment narrow, because
of the complexity of the derecognition requirements and there is a
danger that a narrow-scope amendment might create more problems
than it solves.

(e) this does not appear to be a fatal flaw and therefore some IASB
members expressed reluctance to amend a new Standard before it has
been implemented and applied in practice.

Technical analysis

36. In this section, we first look at the impact of the possible derecognition of a
modified or exchanged financial asset.

37. Secondly, we consider some of the key technical issues that may arise when
identifying whether guidance could be developed on a narrow-scope basis.

Does it matter whether modified assets are derecognised?

38. Whether modified or exchanged financial assets are derecognised determines

whether a new financial asset should be recognised on modification (at fair value
on initial recognition at the date of the modification) or whether the existing
financial asset should continue to be recognised.

39. This means that, in accordance with IFRS 9:

(a) for all derecognised financial assets, the newly recognised ‘modified’
financial assets may be classified on a different measurement basis from
that of the original asset. For example, if the new asset is now managed
under a different business model, it may be measured at amortised cost

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or fair value through other comprehensive income (FVOCI) instead of

fair value though profit or loss (FVPL). Without derecognition of the
original asset, such a reclassification would be prohibited unless
otherwise allowed for under the Standard.

(b) for derecognised debt instruments that are measured at amortised cost
and FVOCI, the amount of expected credit losses recognised in
accordance with the IFRS 9 impairment requirements may differ from
the amount that would otherwise be recognised. This is because
significant increases in credit risk are determined from the date of initial
recognition of the financial asset.

Key technical considerations

40. We have considered some of the key technical issues that may arise when
developing narrow-scope guidance. Our initial analysis has identified the
following, which are discussed below:

(a) defining what we mean by ‘modified financial assets’ for derecognition

purposes;

(b) distinguishing between modifications and transfers of financial assets;

(c) how a substantial modification of a financial asset might be determined;

and

(d) implications for the derecognition of financial liabilities.

41. This section highlights some of the challenges that may arise when developing
narrow-scope guidance. However, at this stage, we are not attempting to analyse
or find solutions to the issues identified.

Defining what we mean by modified financial assets

42. Modifications and exchanges of financial instruments are not formally defined in
IFRS 9. However some limited explanation is given within the context of the
derecognition requirements for financial liabilities (see paragraph 21).

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43. Defining or describing what is meant by a modification of a financial instrument

for the purposes of applying any guidance on derecognition is part of the
consideration of the scope of any guidance. In doing so, we would need to
consider:

(a) which parties are involved in a modification (eg is it the existing holder
and issuer only?);

(b) whether a modification would be restricted to changes to the original

contractual cash flows or would it also include other non-cash changes
to the original terms (eg covenant terms, bankruptcy rights);

(c) which transactions, including linked transactions, are considered to be

modifications. From the holder’s perspective the same economic
modification can be transacted in different ways. Should they all be
accounted for as modifications? For example, the interest cash flows of
a financial asset could be modified through either:

(i) an amendment to the original contractual terms of the

instrument (‘renegotiating’ the original contract);
(ii) exchanging the original instrument for a new instrument
that is identical except for the revised interest cash flows
(an ‘exchange’); and

(iii) keeping the original instrument and entering into an interest

rate swap with the issuer that swaps the original cash flows
with the revised interest cash flows (‘linking’ a new
derivative with the original asset).

44. The guidance on the derecognition of financial liabilities in IFRS 9 and IAS 39
already introduces the concept that both an exchange between an existing
borrower and lender of debt instruments with substantially different terms and a
substantial modification of the terms of an existing financial liability should be
accounted for as an extinguishment of the original financial liability and the
recognition of a new financial liability. However, ‘linking’ a new derivative with
an existing financial asset for derecognition and, by implication, treating the two
as one for subsequent accounting purposes, could have significant consequences.

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Distinguishing between modifications and transfers of financial assets

45. If new guidance is developed on the derecognition of modified financial assets, a

key issue that arises is whether there would be any implications for the existing
derecognition requirements for ‘transferred’ assets. There would need to be
clarity about in which circumstances the existing transfer requirements apply
(which incorporate a risks and rewards approach (see paragraph 17)) or any new
guidance for modified financial assets.

46. For example, if an entity sells a bond to a transferee and enters into a total return
swap over the bond with the transferee, the existing derecognition requirements
for transferred assets would prohibit derecognition of the bond because the entity
has retained substantially all the risks and rewards (see paragraph B3.2.16(o) of
IFRS 9). However if the entity enters into the same transaction, but with the
issuer of the bond instead of with a third party, should the transaction still be
accounted for as:

(a) a transfer of the bond (because economically the entity is in a similar

position whether it transacts with the issuer or with a third party); or

(b) a modification of the bond, which could result a different outcome?

How a substantial modification of a financial asset might be determined

47. Any potential project would need to consider in which circumstances

modifications of financial assets should result in derecognition. If an approach
similar to that for financial liabilities is adopted (ie a ‘substantial’ modification or
exchange between the holder and issuer results in derecognition of the financial
asset), then a qualitative test or a quantitative test, or both, could be developed.

48. A qualitative test would be more principle-based. However, by avoiding a

bright-line test, it becomes more judgemental and may not satisfy the request for
clearer guidance.

49. If a quantitative test is introduced, perhaps similar to the 10 per cent test for
liabilities, then it would be necessary to consider its suitability or how to adapt it
for financial assets. For example:

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(a) for debt instruments measured at amortised cost or FVOCI, would the
cash flows being considered be based on the contractual cash flows, or
the expected cash flows after expected credit loss and write-offs?

(b) how would a qualitative test work for equity and hybrid financial
instruments, because equity cash flows are discretionary and so the
holder has no contractual right to cash flows?

Implications for derecognition of financial liabilities

50. If new guidance is developed for the derecognition of modified financial assets,
there may be a need to consider the potential implications for the derecognition of
financial liabilities. This may depend upon the view as to how much symmetry
there should be between the issuer and holder of an instrument on the
derecognition of the instrument.

51. It would be necessary to consider whether any specific guidance on the

derecognition of modified financial assets (including any definition of
‘modification’) would apply to the derecognition of modified financial liabilities
either by analogy or directly (through a revision of the existing requirements).

52. For example, if a specific qualitative test was introduced to determine whether
modified financial assets are derecognised, should it similarly be explicitly
introduced for the derecognition of modified financial liabilities?

Staff recommendation

53. We acknowledge that there have been some requests for clearer guidance in this
area. However, we recommend that the Interpretations Committee should not
progress, at this time, its consideration of whether a potential project to clarify the
derecognition of modified financial assets with a sufficiently narrow scope can be
identified. This is because:

(a) we think that the technical considerations identified above highlight that
it may be difficult to develop guidance within a narrow-scope project,
in particular because:

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(i) of the potential overlap with, and implications for, the

derecognition of transferred financial assets, linkage of
transactions and the derecognition of modified financial
liabilities; and
(ii) such a project would be complex. These complexities also
mean that such a project could require a significant amount
of time and resources.

(b) the IASB has previously considered, in late 2013, whether to develop
further guidance on when a modification of a financial asset results in
derecognition and decided not to, recognising that this is a non-trivial
question that would require significant time and resources (see
paragraph 32).

(c) the existing derecognition requirements are not new and, although there
have been some requests for clearer guidance, there is limited evidence
to date of a pressing need for new guidance. Furthermore, the
Interpretations Committee’s agenda decision in September 2012, which
was based on the GGB exchange scenario, already provides some help
in practice. In addition, this can be a judgemental area and so there
might be a limit as to the extent of the clarity any new additional
guidance could achieve.

(d) our informal soundings of individual members of the IASB indicate that
there is little appetite among IASB members to take on such a project at
this time, for the reasons noted in paragraph 35.

Question for Interpretations Committee

Do you agree with the staff recommendation not to progress, at this time,
further consideration of whether a potential project to clarify the derecognition
of modified financial assets with a sufficiently narrow scope can be identified
to be proposed to the IASB?

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Appendix A
IFRS 9 Derecognition of financial assets decision tree

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Appendix B
IFRIC Update September 2012 (Greek Government Bond exchange)
IAS 39 Financial Instruments: Recognition and Measurement—Derecognition of financial
instruments upon modification

The Interpretations Committee received a request for guidance on the circumstances in which the
restructuring of Greek government bonds (GGB) should result in derecognition in accordance with IAS 39 of
the whole asset or only part of it. In particular, the Interpretations Committee has been requested to consider
whether:

• the portion of the old GGBs that are exchanged for twenty new bonds with different maturities and
interest rates should be derecognised, or conversely accounted for as a modification or transfer that
would not require derecognition?
• IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors would be applicable in
analysing the submitted fact pattern?
• either paragraphs AG8 or AG62 of IAS 39 would be applicable to the fact pattern submitted if the
GGBs were not derecognised?

Exchange of financial instruments: derecognition?

The Interpretations Committee noted that the request has been made within the context of a narrow fact
pattern. The narrow fact pattern highlights the diversity in views that has arisen in relation to the accounting
for the portion of the old GGBs that is exchanged for twenty new bonds with different maturities and interest
rates. The submitter asked the Interpretations Committee to consider whether these should be
derecognised, or conversely accounted for as a modification or transfer that would not require derecognition.

In addition, the Interpretations Committee has been asked to consider whether IAS 8 would be applicable in
analysing the submitted fact pattern, and whether the exchange can be considered to be a transfer within
the scope of paragraph 17(b) of IAS 39.

The Interpretations Committee observed that the term ‘transfer’ is not defined in IAS 39. However, the
potentially relevant portion of paragraph 18 of IAS 39 states that an entity transfers a financial asset if it
transfers the contractual rights to receive the cash flows of the financial asset. The Interpretations
Committee noted that, in the fact pattern submitted, the bonds are transferred back to the issuer rather than
being transferred to a third party. Accordingly, the Interpretations Committee believed that the transaction
should be assessed against paragraph 17(a) of IAS 39.

In applying paragraph 17(a), the Interpretations Committee noted that, in order to determine whether the
financial asset is extinguished, it is necessary to assess the changes made as part of the bond exchange
against the notion of ‘expiry’ of the rights to the cash flows. The Interpretations Committee also noted that, if
an entity applies IAS 8 because of the absence in IAS 39 of an explicit discussion of when a modification of
a financial asset results in derecognition, applying IAS 8 requires judgement to develop and apply an
accounting policy. Paragraph 11 of IAS 8 requires that, in determining an appropriate accounting policy,
consideration must first be given to the requirements in IFRSs that deal with similar and related issues. The
Interpretations Committee noted that, in the fact pattern submitted, that requirement would lead to the
development of an analogy to the notion of a substantial change of the terms of a financial liability in
paragraph 40 of IAS 39.

Paragraph 40 sets out that such a change can be effected by the exchange of debt instruments or by
modification of the terms of an existing instrument. Hence, if this analogy to financial liabilities is applied to
financial assets, a substantial change of terms (whether effected by exchange or by modification) would
result in derecognition of the financial asset.

The Interpretations Committee noted that, if the guidance for financial liabilities is applied by analogy to
assess whether the exchange of a portion of the old GGBs for twenty new bonds is a substantial change of
the terms of the financial asset, the assessment needs to be made taking into consideration all of the
changes made as part of the bond exchange.

In the fact pattern submitted, the relevant facts led the Interpretations Committee to conclude that, in
determining whether the transaction results in the derecognition of the financial asset, both approaches (ie
extinguishment under paragraph 17(a) of IAS 39 or substantial change of the terms of the asset) would

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result in derecognition.

The Interpretations Committee considered the following aspects of the fact pattern in assessing the extent of
the change that results from the transaction:

• A holder of a single bond has received, in exchange for one portion of the old bond, twenty bonds with
different maturities and cash flow profiles as well as other instruments in accordance with the terms
and conditions of the exchange transaction.
• All of the bond-holders received the same restructuring deal irrespective of the terms and conditions of
their individual holdings. This indicates that the individual instruments, terms and conditions were not
taken into account. The different bonds (series) were not each modified in contemplation of their
respective terms and conditions but were instead replaced by a new uniform debt structure.
• The terms and conditions of the new bonds are substantially different from those of the old bonds. The
changes include many different aspects, such as the change in governing law; the introduction of
contractual collective action clauses and the introduction of a co-financing agreement that affects the
rights of the new bond holders; and modifications to the amount, term and coupons.

The Interpretations Committee noted that the starting point that it used for its analysis was the assumption in
the submission that the part of the principal amount of the old GGBs that was exchanged for new GGBs
could be separately assessed for derecognition. The Interpretations Committee emphasised that this
assumption was more favourable for achieving partial derecognition than looking at the whole of the old
bond. Hence, its conclusion that the old GGBs should be derecognised would apply even more so when
taking into account that the exchange of the old GGBs was, as a matter of fact, the result of a single
agreement that covered all aspects and types of consideration for surrendering the old GGBs. As a
consequence, the Interpretations Committee noted that partial derecognition did not apply.

Consequently, the Interpretations Committee decided not to add the issue to its agenda.

Application of paragraphs AG62 or AG8 of IAS 39 to the submitted fact pattern

The Interpretations Committee noted that the questions raised by the submitter assume that the old GGBs in
the fact pattern would not be derecognised. In the submitted fact pattern, the Interpretations Committee
concluded that the old GGBs are derecognised. The Interpretations Committee noted that, because of its
conclusion on derecognition, these questions did not need to be answered.

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 Agenda ref 4

Appendix C
IFRIC Update November 2014 (Holders accounting for exchange of equity
instruments)
IAS 39 Financial Instruments: Recognition and Measurement—Holder’s accounting for exchange of
equity instruments

The Interpretations Committee received a request about the accounting by the holder of equity instruments
in the circumstance in which the issuer exchanges its original equity instruments for new equity instruments
in the same entity but with different terms. Specifically, this transaction involved equity instruments issued by
a central bank, and the exchange of instruments was imposed on the holders as a consequence of a change
in legislation.

The submitter asked whether the holders of the equity instruments should account for this exchange under
IAS 39 as a derecognition of the original equity instruments and the recognition of new instruments.

The Interpretations Committee observed that:

a. because of the unique nature of the transaction, the issue is not widespread; and
b. the submitter had not identified significant diversity in accounting for this transaction among the holders
of the equity instruments in question.
For these reasons, the Interpretations Committee decided not to add this specific issue to its agenda.

The Interpretations Committee additionally noted requests for more guidance in IAS 39 and IFRS 9 on the
derecognition of financial assets that have been modified or exchanged. The staff observed that this more
general matter had been raised previously with the IASB but that it had decided not to add such a project to
its agenda. The Interpretations Committee asked the staff to perform further analysis to identify whether an
issue of sufficiently narrow scope could be identified to be raised with the IASB. The staff’s analysis will be
considered at a future Interpretations Committee meeting.

IFRS 9/IAS 39│Derecognition of modified financial assets

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