IASB Toughens Standards for Securitizations

The International Accounting Standards Board has amended its standards on financial instrument disclosures to beef up the disclosure requirements for financial asset transfer transactions such as securitizations, and discourage questionable balance-sheet “window dressing.”

The newly finalized amendments to IFRS 7, “Financial Instruments: Disclosures,” are part of the IASB’s comprehensive review of off-balance-sheet transactions. The amendments are intended to allow users of financial statements to improve their understanding of transfer transactions of financial assets (for example, securitizations), including understanding the possible effects of any risks that may remain with the entity that transferred the assets. The amendments also require additional disclosures if a disproportionate amount of transfer transactions are undertaken around the end of a reporting period.

The amendments broadly align the relevant disclosure requirements of International Financial Reporting Standards and U.S. GAAP.

The IASB had previously published for public comment proposals to replace the existing derecognition model in IAS 39, “Financial Instruments: Recognition and Measurement,” and the associated disclosure requirements in IFRS 7. However, in response to the feedback received, the IASB decided to retain the existing derecognition requirements (which will be incorporated into IFRS 9, “Financial Instruments”) and to finalize the improved disclosure requirements.  The new requirements are contained in “Disclosures—Transfers of Financial Assets (Amendments to IFRS 7).”

“These are important disclosure requirements that will help investors to better understand off-balance-sheet risks, and to alert them to the possibility of so-called ‘window dressing’ transactions occurring at the end of a reporting period,” IASB Chairman Sir David Tweedie said in a statement. “The IASB and the U.S. Financial Accounting Standards Board will conduct additional research and analysis, including a post-implementation review of the FASB’s recently amended requirements, before determining any further work to be undertaken.”

A feedback statement outlining how the IASB responded to feedback it received through the consultation process is available by clicking here. A podcast introduction to the new disclosure requirements is available via iTunes, or by clicking here.