30 January 2009

EFRAG final comment letter on IFRIC 9 and IAS 39 'Embedded Derivatives'

The focus of IFRIC 9 is on whether entities should reconsider whether an embedded derivative is closely related to the host contract, EFRAG understands, and demands further clarifications.

EFRAG has finalised its due process and submitted to the IASB its comment letter on the ED of proposed amendments to IFRIC 9 and IAS 39 'Embedded Derivatives'.

 

Although EFRAG agrees with the IASB’s conclusions reached in the ED, it have some comments regarding the actual amendments proposed.

 

The focus of IFRIC 9 is on whether entities should reconsider whether an embedded derivative is closely related to the host contract, EFRAG understands.

 

Therefore, the purpose of IFRIC 9 is to prohibit re-assessment of embedded derivatives with regard to whether the embedded derivatives are closely related to the host contract or not, EFRAG notes. That would clarify that IFRIC 9 does not prohibit an assessment of embedded derivatives upon reclassification of financial instruments out of the fair value through profit or loss category.

 

EFRAG also considers the proposed amendments to paragraph 7 and new paragraph 7A of IFRIC 9 as ‚unhelpful’ and doubts that an amendment is needed.

 

Finally, EFRAG raises another potential application issue with IFRIC 9 as the FASB and the IASB are currently deliberating an issue relating to whether derivatives embedded in collateralised debt obligations can be considered closely related to the host contract in certain cases. Should this result in changes that have an effect on IAS 39’s closely-related/non-closely-related embedded derivatives requirements, such issues would need to be addressed.

 

Final comment letter

 

© EFRAG - European Financial Reporting Advisory Group