Pass-through transfer arrangements

Learning objectives

• Assess whether an arrangement in which the entity retains the rights but passes on the cash flows meets the three conditions of a pass-through arrangement.L3

Normative references

• IFRS 9 §3.2.5Pass-through arrangement: three cumulative conditions — (a) the entity has no obligation to pay amounts to the eventual recipients unless it collects equivalent amounts from the original asset (short-term advances with the right of full recovery plus accrued interest at market rates are permitted); (b) the entity is prohibited by the terms of the transfer contract from selling or pledging the original asset other than as security to the eventual recipients; (c) the entity has an obligation to remit any cash flows it collects without material delay and is not entitled to reinvest them, except in cash or cash equivalents during the short settlement period, with the interest earned passed to the eventual recipients.

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

1 question

• Rho SA continues to collect the repayments of a loan portfolio and has undertaken to pass those collections on to investors. The contract requires it to pay the investors the amounts provided for even when the debtors do not pay it; it prohibits Rho from selling the loans; Rho passes the collections on without significant delay. Which conclusion on the pass-through arrangement is consistent?L3