Transfer of risks and rewards

Learning objectives

• Determine, from the facts of a case, whether the entity has transferred substantially all, retained substantially all, or neither transferred nor retained substantially all the risks and rewards of ownership of a financial asset.L2, L3
• Support in writing, from the facts of the case, the judgement made on the transfer of risks and rewards.L2, L3

Normative references

• IFRS 9 §3.2.6When the rights are transferred, the entity first evaluates the extent to which it retains the risks and rewards of ownership: (a) substantially all transferred: derecognition and separate recognition of any rights and obligations created or retained; (b) substantially all retained: the asset continues to be recognised; (c) neither transferred nor retained: control is considered — control not retained: derecognition; control retained: the asset continues to be recognised to the extent of the continuing involvement. The Standard sets no numerical threshold for 'substantially all'.
• IFRS 9 §3.2.7The evaluation of the risks and rewards compares the entity's exposure, before and after the transfer, with the variability in the amounts and timing of the net cash flows of the transferred asset: retention is illustrated by a sale with an agreement to repurchase at a fixed price (or at the sale price plus a lender's return), transfer by a sale together with only an option to repurchase at fair value or by the transfer of a fully proportionate share of the cash flows meeting para. 3.2.5.

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

3 questions

• IFRS 9 sets a numerical threshold beyond which the entity is deemed to have transferred substantially all the risks and rewards of a financial asset.L2
• Lambda SA sells a loan portfolio but remains exposed, after the sale, to the same variability in the amounts and timing of net cash flows as before. The rights have indeed been transferred. Which conclusion should be drawn?L2
• A file summarises the analysis of risks and rewards after a transfer of rights. Which sentence is wrong?L3