This is part of a decision model for the derecognition of financial assets. The derecognition can be a full derecognition, a full continued recognition, a full derecognition with recognition of new assets or liabilities retained or a continued involvement. The model is starting here. Derecognition of financial assets
Under the continuing involvement approach, the entity continues to recognise part of the asset. The amount of the asset that continues to be recognised is the maximum amount of the entity’s exposure to that particular asset or its previous carrying amount, if lower. The presentation of the asset and liability will result in the recognition of the entity’s remaining exposure on the balance sheet on a gross basis (i.e., both an asset and a liability). The asset will be measured either at fair value if the asset was previously held at fair value, or at amortised cost if the asset was previously accounted for on that basis. The treatment of the changes in the liability should be consistent with the treatment of changes in the asset. Consequently, when the transferred asset is classified as available for sale, gains and losses on both the asset and the liability are taken to equity.
Overview of the continuing involvement
Accounting for continuing involvement in transferred assets is covered in paragraphs IFRS 9 3.2.16-21 and applies when an entity neither transfers nor retains substantially all the risks and rewards of ownership of a transferred asset, and retains control of the transferred asset.
Transfers with guarantees
If a guarantee provided by an entity to pay for default losses on a transferred asset prevents the transferred asset from being derecognised to the extent of the continuing involvement, the transferred asset at the date of the transfer is measured at the lower of (IFRS 9 3.2.16(a); IFRS 9 B3.2.13(a)):
- the carrying amount of the asset and
- the guarantee amount
An example is given in IFRS 9 B3.2.17.
Put and call options on assets measured at amortised cost
If a put or call option prevents a transferred asset from being derecognised and the entity measures the transferred asset at amortised cost, the associated liability is measured at the consideration received adjusted for the amortisation of any difference between that cost and the gross carrying amount of the transferred asset at the expiration date of the option (IFRS 9 B3.2.13(b)).
Put and call options on assets measured at fair value
If a put or call option prevents a transferred asset from being derecognised and the entity measures the transferred asset at fair value, the asset continues to be measured at its fair value. The associated liability is measured at
- the option exercise price less the time value of the option if the option is in or at the money, or
- the fair value of the transferred asset less the time value of the option if the option is out of the money (IFRS 9 B3.2.13(c)).
Continuing involvement in a part of a financial asset
Paragraph IFRS 9 B3.2.17 illustrates accounting for continuing involvement in a part of a financial asset.