IFRS 9: De-recognition of Financial Assets

IFRS 9 (Issued July 2014) is a nightmare for accounting students. Combined with the other financial instruments standards of IAS 32 and IFRS 7 I think it is only a matter of time before specialist qualifications become more main-stream for financial instrument accounting.

One simple issue that presents itself from time to time is when a company factors it’s trade receivables. Students sometimes forget that trade receivables are a financial asset and the main question is whether the company can derecognise the trade receivables or whether they must continue to recognise the amount as a current asset on their SOFP.

I will refer you to an excerpt from one of my favourite online resources for doing quick double checks on accounting standards: BDO’s “IFRS at a Glance”:

IFRS 9 Derecognition.JPG

With factoring, the company has usually transferred the right to receive cash flows from the financial asset so the main question that needs to be asked is whether the company has transferred substantially all the risks and rewards associated with the asset. This is a subjective assessment but will usually depend on whether the company is exposed to a material level of bad debts or not.

Attached is the full BDO IFRS at a Glance article for those interested: IFRS 9 BDO Summary

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