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Thank you Ketan Marwah for the interesting reference. To me, it seems like the issue with investment funds are more that they are not really SPPI at their core, then that it is an issue with the puttable feature. Would investment funds without a puttable feature be SPPI?

Since the instrument is convertible, it goes as fair value though PnL, so all changes in value goes as fair value changes right?

Thank you Marek! When reading the text, it is not obvious to me why puttable instruments fail SPPI however. Maybe a silly question, but in what way is a puttable instrument different from for example a bank deposit which can be withdrawn at will?

I might be completely misunderstanding you, but would it not be the reverse, early on, when the liability is large, that is the point when it accrue the most interest? In this case, interest is assumed to be accrued in each period according to the effective interest method (as in IFRS 9), independen...

Yes, your debt should keep accruing interest, even if it was paid later right?

Not sure about how the entity that get the guarantee should disclose it. Unless there is some language that discharge them in case the guarantor picks up the bill (which is quite rare), the only thing the guarantee does is that in case it get utilized, who the entity owes money to changes from suppl...

Typically, guarantees for financial instruments would fall under IFRS 9 right? IFRS 9.2.1 e (iii): this Standard applies to: an issuer’s rights and obligations under insurance contracts that meet the definition of a financial guarantee contract. However, if an issuer of financial guarantee contracts...

I have limited experience of these myself, but as I understand it, is is a financial instrument which enable the lender to at any time terminate the instrument and receive compensation, typically connected to the par value. In the retail financial space where I work, these instruments are for quite ...

Truly and honorable group to be in

Love the opportunity to learn each time I click on this site

Great reference Marek, thank you!

Thank you JRSB, super interesting way to view it

Aha, but then you are just on the other end right? You have an asset with 0 % interest rate? So the same reasoning as above but from the asset side.

Is the point not that you should see it as a liability, payable at the end? However, since the interest is 0 % (so lower then market rate), you would have to adjust it to what you could get similar deposits for (so the relevant market rate). At least my spontaneous thoughts, but love to hear any oth...

This is not my particular area of expertise, but in substance, this sounds alot like you are running a form of shadow banking: The customers get one rate on their money, and you have borrowed it out at a higher rate, hence pocketing the difference. In such a case, one could argue why you should not ...

In that case, there should not ben any issue right? The loan was fair value at origination, and what happens after that will not matter, or? Love to hear if there is some other views?

What rate are you moving over to using from LIBOR?

Thank you for the correction DJP! Mistake on my part!

It is correct that if you have an equity instrument classified as FVOCI, then there is no recycling to PnL. This is a hotly debated issue on what would be the optimal standard, but the rules are quite clear in this context. See: IFRS 9.B5.7.9: Amounts presented in other comprehensive income shall no...

DJP wrote: ↑07 Dec 2023, 10:08 Have a look at IFSR 9 5.4.3 and BC4.252-3

Cheers

The Basis of Conclusion version I have end BC4 on BC4.215 (not sure if I have the right version however )

@Jakob The initial recognition is at fair value. It's the *subsequent* measurement that is at the higher of ECL and the amount initially recognised. Good point Marek, I am aware the standard mentions this. My point is rather that in absence of other information, would not rather the ECL also be qui...

So in this case of the 1 dollar fee, should one rather recognize the the amount of the loss allowance determined in accordance with Section 5.5 of that Standard?

So I guess the first question here is why the loan commitment is not at given at fair value? Secondly, what information is available. One could go all they way down to level 3, making some form of discounted cash flow analysis (also adjusting for the optionality in the agreement), but the simplest i...

Good points raised hubertd. What I meant was that the borrowing rate includes a risk premium that reflect the borrowers risk. For floating rate, one possibility is to use not one discount rate, but rather a forward curve. Hence what you could do is question solving, so that you assume the initial am...

I think this example demonstrates the calculation: https://www.bdo.com.au/en-au/content/accounting-news/accounting-news-november-2018/financial-guarantees-under-ifrs-9 In this example, the premiums get discounted under the discount rate the borrower would have had without the guarantee, which sort o...

Yes, if you give out a loan commitment, you have to book an ECL (which shows up in the P&L), since you have now a commitment that could lead to future losses. Compare it to for example giving out a credit card, there you have also agreed to a right of the customer in the future drawing down the ...

I think the relevant question is to ask: Why would there be a difference from market rates? If the answer is due to for example risk or other commercial consideration, one could argue the deal is on fair value, it is just that there are some other factors involved.

What it clear when booking in the rate that there was a loan connected to it? In such case, it could still be classified as fair value, since it was a fair value off-balance item when the booking rate was set. However, more details here are needed on the loan arrangement.

It depends on the measurement model used in IFRS 9. For amortized cost, the matter is actually quite delicate. The common usage is that you at origination use the contractual rate (as long as there are no other special features such as prepayment or fees that alter the cash flows) and then if the ri...

I think ICAEW:s ethics course made a point of transactions constructed with no real business purpose other then to sidestep rules, is a road one should stay clear off as much as possible, and I often find that being very good advice in general

Out of interest here, what is the functional purpose of entity C?