|
|
The ED proposes a narrow-scope amendment to IFRS 9 Financial Instruments so that a financial asset that would otherwise meet the SPPI condition in IFRS 9 but does not do so only as a result of a contractual term that permits (or requires) the issuer to prepay a debt instrument or permits (or requires) the holder to put a debt instrument back to the issuer before maturity, is eligible to be measured at amortised cost or fair value through other comprehensive income ('FVOCI') (subject to meeting the business model condition) if:
In its draft comment letter, EFRAG welcomes the IASB addressing the concerns related to prepayment features with negative compensation. In EFRAG's preliminary view, the negative sign of the reasonable compensation for early termination should not be the sole reason for preventing measurement of a financial asset at amortised cost or FVOCI.
However, EFRAG is of the view that prepayment features with negative compensation should be subject to the same eligibility conditions as prepayment features with positive compensation. As a result, EFRAG agrees with the first eligibility criterion, but not with the second one that states that the fair value of the prepayment feature should be insignificant at initial recognition. Moreover, given that the Amendments are being developed on a fast track timetable, EFRAG questions whether the IASB has or will be able to obtain sufficient evidence of the types of instruments that would be excluded by the second criterion and whether those outcomes are appropriate.
In order to minimise any disruption to the implementation efforts already undertaken by preparers and users, EFRAG requests the IASB to do its utmost to finalise the Amendments as soon as possible and to ensure they are limited to what is strictly necessary to address the issue submitted to the IFRS Interpretations Committee. Consequently, EFRAG is strongly of the view that the final amendments to IFRS 9 should not be accompanied by references that interpret existing IFRS 9, including the meaning of ‘reasonable compensation’. Any such references might affect the accounting treatment of other financial instruments, which is beyond the scope of the proposed Amendments.
Lastly, EFRAG recommends that the IASB include an effective date of 1 January 2019, with early application permitted, rather than the date proposed in the Amendments. If the proposed Amendments can be applied at the same time as IFRS 9, EFRAG agrees with applying them retrospectively.
EFRAG requests comments on its draft responses to the questions raised in the ED and to questions raised by EFRAG by 17 May 2017.