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ACCA Strategic Professional · Strategic Business Reporting (International) · Discussion of issues in financial reporting

Kappa Group's finance team proposes to structure a sale of receivables so that exactly 89% of the credit risk is transferred, to stay just below a 90% 'bright line' in an old local rule and keep the receivables on the statement of financial position. Under IFRS Accounting Standards, which statement best reflects the correct approach?

Derecognition should be determined by applying IFRS 9's tests on transfer of contractual rights, risks and rewards, and control, using judgement about substance. A local numerical threshold is not an IFRS requirement, and legal title alone or partial transfer of risk does not settle the treatment.

  1. ADerecognition is decided by applying IFRS 9 criteria on transfer of risks and rewards and control, not by a local numerical thresholdCorrect
  2. BThe local 90% threshold should be applied because it is more precise than IFRS 9
  3. CDerecognition is always permitted once legal title passes
  4. DThe receivables must always be derecognised if any credit risk is transferred

Explanation

IFRS 9 derecognition depends on whether the contractual rights have expired or been transferred and the extent to which risks and rewards and control have passed, requiring judgement. A local bright line is not part of IFRS. Legal title alone is not decisive, and transferring some risk does not automatically trigger derecognition.

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