IASB amends requirements for financial guarantee contracts

18 August 2005

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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