ipsas 29—financial instruments: recognition and measurement - IFAC

FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT
rate increases by 100 basis points. Such a contract is a derivative even
though a notional amount is not specified.
AG22. The definition of a derivative in this Standard includes contracts that are
settled gross by delivery of the underlying item (e.g., a forward contract to
purchase a fixed rate debt instrument). An entity may have a contract to
buy or sell a non-financial item that can be settled net in cash or another
financial instrument or by exchanging financial instruments (e.g., a
contract to buy or sell a commodity at a fixed price at a future date). Such
a contract is within the scope of this Standard unless it was entered into
and continues to be held for the purpose of delivery of a non-financial
item in accordance with the entity’s expected purchase, sale or usage
requirements (see paragraphs 4–6).
AG23. One of the defining characteristics of a derivative is that it has an initial
net investment that is smaller than would be required for other types of
contracts that would be expected to have a similar response to changes in
market factors. An option contract meets that definition because the
premium is less than the investment that would be required to obtain the
underlying financial instrument to which the option is linked. A currency
swap that requires an initial exchange of different currencies of equal fair
values meets the definition because it has a zero initial net investment.
AG24. A regular way purchase or sale gives rise to a fixed price commitment
between trade date and settlement date that meets the definition of a
derivative. However, because of the short duration of the commitment it is
not recognized as a derivative financial instrument. Rather, this Standard
provides for special accounting for such regular way contracts (see
paragraphs 40 and AG68–AG71).
AG25. The definition of a derivative refers to non-financial variables that are not
specific to a party to the contract. These include an index of earthquake
losses in a particular region and an index of temperatures in a particular
city. Non-financial variables specific to a party to the contract include the
occurrence or non-occurrence of a fire that damages or destroys an asset
of a party to the contract. A change in the fair value of a non-financial
asset is specific to the owner if the fair value reflects not only changes in
market prices for such assets (a financial variable) but also the condition
of the specific non-financial asset held (a non-financial variable). For
example, if a guarantee of the residual value of a specific car exposes the
guarantor to the risk of changes in the car’s physical condition, the change
in that residual value is specific to the owner of the car.
Transaction Costs
AG26. Transaction costs include fees and commissions paid to agents (including
employees acting as selling agents), advisers, brokers, and dealers, levies
IPSAS 29 APPLICATION GUIDANCE 1076