CESR agrees with EFRAG that the main crisis-related issues arising from the existing derecognition model concern disclosures. CESR therefore appreciates the efforts made by the IASB to consistently respond to these problems by proposing a new derecognition model.

 

CESR has some sympathy for the approach proposed in the ED of focusing on one single element, i.e. control, rather than combining several elements as in the current approach:

 

a) A single principle would be easier to apply than the current IAS 39 derecognition requirements which are obviously difficult to understand and to apply in practice;

 

b) A single criterion for derecognition of financial assets based on control would mirror the criteria for recognition of assets which is also based on control;

 

c) The control approach is more in line with the current approach on the credit side of the balance sheet. According to existing IAS 39, if an issuer transfers a financial liability to a third party and offers the creditor a full guarantee for the credit risk, the financial liability is derecognised, although the credit risk falls for the account of the debtor who transferred the financial liability; and

 

d) The risks regarding derecognized assets should rather be reflected in the notes than on the balance sheet.

 

CESR tends more towards of the alternative approach which seems to be conceptually more robust, less complex and easier to comply with. However, CESR believes that the alternative approach proposes fundamental changes and agrees with EFRAG that more time is needed to discuss such changes and that such issues need more comprehensive consideration.

 

In addition, CESR is of the opinion that extensive field-testing should take place, particularly with financial institutions, in order to get a better picture of the impact of the alternative approach might have on the statement of financial position.

 

Regarding the “practical ability to transfer for own benefit” test: CESR is not convinced that the assessment of the position of the transferee will be simple to apply in practice.