The International Accounting Standards Board (IASB) issued amended requirements for financial guarantee contracts, in the form of limited amendments to
IAS 39 Financial Instruments: Recognition and Measurement and
IFRS 4 Insurance Contracts. The amendments are intended to en sure that issuers of financial guarantee contracts include the resulting liabilities in their balance sheet.
The amendments define a financial guarantee contract as a ‘contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument’. These contracts could have various legal forms, including a guarantee, some types of letter of credit, or a credit insurance contract.
Issuers must apply the amendments for annual periods beginning on or after 1 January 2006.
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