Expiry or transfer of the rights to cash flows

Learning objectives

• Distinguish the expiry of the contractual rights to the cash flows from a financial asset from their transfer, and identify the starting point of the derecognition analysis.L1, L2, L3

Normative references

• IFRS 9 §3.2.3Derecognition of a financial asset: first question, have the contractual rights to the cash flows from the asset expired (for example, repayment or expiry of an option)? If not, the entity considers whether there is a transfer that qualifies for derecognition.
• IFRS 9 §3.2.4A financial asset is transferred if the entity transfers the contractual rights to receive its cash flows, or retains those rights but assumes a contractual obligation to pay them to one or more recipients in an arrangement that meets the conditions in para. 3.2.5.
• 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.

3 questions

• To derecognise a financial asset, the first question is whether the contractual rights to its cash flows have expired.L1
• Omega SA holds a receivable that it does not legally assign. It nevertheless undertakes to pass on to a third party the cash flows it collects, under an arrangement that meets the three pass-through conditions. Which analysis should be retained?L2
• Which situations constitute a transfer of a financial asset in the derecognition analysis? Several answers are possible.L3