ipsas 29—financial instruments: recognition and measurement - IFAC

FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT
(n) Subordinated retained interests and credit guarantees. An entity may
provide the transferee with credit enhancement by subordinating some
or all of its interest retained in the transferred asset. Alternatively, an
entity may provide the transferee with credit enhancement in the form
of a credit guarantee that could be unlimited or limited to a specified
amount. If the entity retains substantially all the risks and rewards of
ownership of the transferred asset, the asset continues to be recognized
in its entirety. If the entity retains some, but not substantially all, of the
risks and rewards of ownership and has retained control, derecognition
is precluded to the extent of the amount of cash or other assets that the
entity could be required to pay.
(o) Total return swaps. An entity may sell a financial asset to a
transferee and enter into a total return swap with the transferee,
whereby all of the interest payment cash flows from the underlying
asset are remitted to the entity in exchange for a fixed payment or
variable rate payment and any increases or declines in the fair value
of the underlying asset are absorbed by the entity. In such a case,
derecognition of all of the asset is prohibited.
(p) Interest rate swaps. An entity may transfer to a transferee a fixed
rate financial asset and enter into an interest rate swap with the
transferee to receive a fixed interest rate and pay a variable interest
rate based on a notional amount that is equal to the principal
amount of the transferred financial asset. The interest rate swap
does not preclude derecognition of the transferred asset provided
the payments on the swap are not conditional on payments being
made on the transferred asset.
(q) Amortizing interest rate swaps. An entity may transfer to a transferee a
fixed rate financial asset that is paid off over time, and enter into an
amortizing interest rate swap with the transferee to receive a fixed
interest rate and pay a variable interest rate based on a notional
amount. If the notional amount of the swap amortizes so that it equals
the principal amount of the transferred financial asset outstanding at
any point in time, the swap would generally result in the entity
retaining substantial prepayment risk, in which case the entity either
continues to recognize all of the transferred asset or continues to
recognize the transferred asset to the extent of its continuing
involvement. Conversely, if the amortization of the notional amount of
the swap is not linked to the principal amount outstanding of the
transferred asset, such a swap would not result in the entity retaining
prepayment risk on the asset. Hence, it would not preclude
derecognition of the transferred asset provided the payments on the
swap are not conditional on interest payments being made on the
transferred asset and the swap does not result in the entity retaining any
IPSAS 29 APPLICATION GUIDANCE 1096