ipsas 29—financial instruments: recognition and measurement - IFAC

More documents

Recommendations

Info

FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT entities should be permitted to a valuation technique that does not rely on an observable market where they are satisfied that such a technique provides a reliable and understandable method of determining a fair value for a financial guarantee contract entered into by an issuer by means of a non-exchange transaction. This is particularly the case for non-standard guarantees where there is limited data available on defaults and credit risk. 1157 IPSAS 29 BASIS FOR CONCLUSIONS PUBLIC SECTOR
FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT Implementation Guidance This guidance accompanies, but is not part of, IPSAS 29. Section A: Scope A.1 Practice of Settling Net: Forward Contract to Purchase a Commodity Entity XYZ enters into a fixed price forward contract to purchase one million liters of oil in accordance with its expected usage requirements. The contract permits XYZ to take physical delivery of the oil at the end of twelve months or to pay or receive a net settlement in cash, based on the change in fair value of oil. Is the contract accounted for as a derivative? While such a contract meets the definition of a derivative, it is not necessarily accounted for as a derivative. The contract is a derivative instrument because there is no initial net investment, the contract is based on the price of oil, and it is to be settled at a future date. However, if XYZ intends to settle the contract by taking delivery and has no history for similar contracts of settling net in cash or of taking delivery of the oil and selling it within a short period after delivery for the purpose of generating a profit from short-term fluctuations in price or dealer’s margin, the contract is not accounted for as a derivative under IPSAS 29. Instead, it is accounted for as an executory contract. A.2 Option to Put a Non-Financial Asset Entity XYZ owns an office building. XYZ enters into a put option with an investor that permits XYZ to put the building to the investor for CU150 million. The current value of the building is CU175 million. The option expires in five years. The option, if exercised, may be settled through physical delivery or net cash, at XYZ’s option. How do both XYZ and the investor account for the option? XYZ’s accounting depends on XYZ’s intention and past practice for settlement. Although the contract meets the definition of a derivative, XYZ does not account for it as a derivative if XYZ intends to settle the contract by delivering the building if XYZ exercises its option and there is no past practice of settling net (IPSAS 29, paragraph 4 and IPSAS 29, paragraph AG22). The investor, however, cannot conclude that the option was entered into to meet the investor’s expected purchase, sale or usage requirements because the investor does not have the ability to require delivery (IPSAS 29, paragraph 6). In addition, the option may be settled net in cash. Therefore, the investor has to account for the contract as a derivative. Regardless of past practices, the investor’s intention does not affect whether settlement is by delivery or in cash. The investor has written an option, and a written option in which the holder has a choice of physical settlement or net cash settlement can never satisfy the normal delivery requirement for the exemption from IPSAS 29 because the option writer does not have the ability to require delivery. IPSAS 29 IMPLEMENTATION GUIDANCE 1158
Page 1 and 2:
IPSAS 29—FINANCIAL INSTRUMENTS: R
Page 3 and 4:
FINANCIAL INSTRUMENTS: RECOGNITION
Page 5 and 6:
Introduction FINANCIAL INSTRUMENTS:
Page 7 and 8:
Page 9 and 10:
Page 11 and 12:
Page 13 and 14:
Page 15 and 16:
Page 17 and 18:
Page 19 and 20:
Page 21 and 22:
Page 23 and 24:
Page 25 and 26:
Page 27 and 28:
Page 29 and 30:
Page 31 and 32:
Page 33 and 34:
Page 35 and 36:
Page 37 and 38:
Page 39 and 40:
Page 41 and 42:
Page 43 and 44:
Page 45 and 46:
Page 47 and 48:
Page 49 and 50:
Page 51 and 52:
Page 53 and 54:
Page 55 and 56:
Page 57 and 58:
Page 59 and 60:
Page 61 and 62:
Page 63 and 64:
Page 65 and 66:
Page 67 and 68:
Page 69 and 70:
Page 71 and 72:
Page 73 and 74:
Page 75 and 76:
Page 77 and 78:
Page 79 and 80:
Page 81 and 82:
Page 83 and 84:
Page 85 and 86: FINANCIAL INSTRUMENTS: RECOGNITION
Page 135: FINANCIAL INSTRUMENTS: RECOGNITION
Page 187 and 188:
Page 189 and 190:
Page 191 and 192:
Page 193 and 194:
Page 195 and 196:
Page 197 and 198:
Page 199 and 200:
Page 201 and 202:
Page 203 and 204:
Page 205 and 206:
Page 207 and 208:
Page 209 and 210:
Page 211 and 212:
Page 213 and 214:
Page 215 and 216:
Page 217 and 218:
Page 219 and 220:
Page 221 and 222:
Page 223 and 224:
Page 225 and 226:
Page 227 and 228:
Page 229 and 230:
Page 231 and 232:
Page 233 and 234:
Page 235 and 236:
Page 237 and 238:
Page 239 and 240:
Page 241 and 242:
Page 243 and 244:
Page 245 and 246:
Page 247 and 248:
Page 249 and 250:
Page 251 and 252:
Page 253 and 254:
Page 255 and 256:
Page 257 and 258:
Page 259 and 260:
Page 261 and 262:
Page 263 and 264:
Page 265:
show all

ipsas 29—financial instruments: recognition and measurement - IFAC

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?