Objective and continuing involvement

Learning objectives

• Explain the objective of the disclosures about transfers of financial assets and their presentation in a single note.L2
• Determine whether an entity has continuing involvement in a transferred financial asset.L2

Normative references

• IFRS 7 §42AThe disclosures about transfers (42B to 42H) supplement the other disclosures of the Standard and are presented in a single note; they cover all transferred financial assets that are not derecognised and any continuing involvement in a transferred asset existing at the reporting date, irrespective of when the transfer occurred; an entity transfers an asset if it transfers the contractual rights to receive its cash flows or retains them but assumes a contractual obligation to pay those cash flows to third parties.
• IFRS 7 §42BThe disclosures about transfers of financial assets enable users to understand the relationship between transferred assets that are not derecognised in their entirety and the associated liabilities, and to evaluate the nature of, and risks associated with, the entity's continuing involvement in derecognised assets.
• IFRS 7 §42CFor the disclosures in 42E to 42H, the entity has continuing involvement in a transferred asset if it retains any of the contractual rights or obligations inherent in the asset or obtains any new contractual rights or obligations relating to it; the following are not continuing involvement: normal representations and warranties (fraud, good faith), forward, option and other contracts to reacquire the asset at its fair value, and pass-through arrangements that meet the conditions of IFRS 9.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

4 questions

• Prisme SA has sold a portfolio of receivables and derecognised it. As part of the sale, it gave the buyer a first-loss guarantee covering losses up to 5% of the portfolio; it also gave the usual representations that there is no fraud (case facts). Which of these items creates continuing involvement in the transferred assets?L2
• A working paper describes the objective of the IFRS 7 disclosures on transfers of financial assets. Which of its sentences is wrong?L2
• Zénith SA sold loans and derecognised them in their entirety. The contract leaves it with an option to repurchase these loans at a price set at 102% of their nominal value, different from their fair value on the day of repurchase (case facts). Is the option a continuing involvement to be documented?L3
• Which statements about the IFRS 7 disclosures on transfers of financial assets are correct? (Several answers.)L2