ipsas 29—financial instruments: recognition and measurement - IFAC

Introduction
FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT
IN1. IPSAS 29 prescribes recognition and measurement principles for financial
instruments and is primarily drawn from IAS 39, “Financial Instruments:
Recognition and Measurement” (as at December 31, 2008, including certain
amendments published by the IASB as part of its “Improvements to IFRSs”
issued in April 2009).
Scope
IN2. Financial instruments are contractual arrangements that result in a financial
asset for one entity and a financial liability or equity instrument in another.
Rights and obligation arising out of non-contractual arrangements, such as
through the exercise of legislation or through constructive obligations, are
not financial instruments. The recognition and measurement of rights and
obligations arising out of these transactions are addressed in other IPSASs.
IN3. Many contracts meet the definition of a “financial asset or a financial
liability.” Some of these are accounted for either by using other IPSASs, or
accounted for partly using other IPSASs and partly using IPSAS 29. Some
examples include rights and obligations arising from employee benefits,
lease receivables and finance lease payables.
IN4. IPSAS 29 does not apply to insurance contracts, except certain financial
guarantee contracts and embedded derivatives included in insurance contracts.
An entity is however permitted to apply this Standard to insurance contracts that
involve the transfer of financial risk.
IN5. Commitments to provide credit under specified conditions (loan commitments)
are excluded from the scope of this Standard, with three exceptions. Notably,
commitments to provide a loan at a below market interest rate are within the
scope of IPSAS 29. Most other loan commitments are accounted for using
IPSAS 19, “Provisions, Contingent Liabilities and Contingent Assets.”
IN6. IPSAS 29 applies to contracts for the purchase or sale of a non-financial item if
the contract can be settled net in cash or another financial instrument, or by
exchanging financial instruments. If the contracts were entered into and
continue to be held for the purpose of the receipt or delivery of a non-financial
item in accordance with an entity’s expected purchase, sale, or usage
requirements, IPSAS 29 does not apply.
Initial Recognition and Derecognition
IN7. An entity recognizes financial assets and financial liabilities when it becomes a
party to the contractual provisions of the instrument. Regular way purchases of
financial assets can either be recognized using trade or settlement date
accounting, while derivatives are always recognized using trade date
accounting. Regular way purchases of financial assets are contracts that involve
IPSAS 29 1026