· Although we share many of the concerns raised in the ED about the existing IAS 39 requirements for derecognition, we believe that the focus of the IASB’s work on derecognition should at this time be to address the crisis-related issues arising from the existing derecognition model and to make whatever other incremental changes can be made to the existing requirements that will clearly improve the quality of information provided and/or make them easier to apply. It is our understanding that the main crisis-related issue arising from the IASB’s existing derecognition model relates to disclosure.
· We believe that, having completed that short-term piece of work, a more comprehensive piece of work on derecognition needs to be undertaken. In our view that work would need to address at a conceptual level issues such as the asset definition, the unit of account, the role of risks and rewards and the purpose of the balance sheet. There would need to be a comprehensive debate of these issues and thorough field testing of any resulting proposals.
· We have many concerns about the proposals in the ED, including:
· We are not convinced that the proposed new, broader definition of a transfer represents an improvement and are uncomfortable about introducing this change at this stage.
· We are very concerned about the proposal that the existing risks and rewards tests should be replaced by the continuing involvement test.
· We think that testing for control by focusing on the transferee’s practical ability to transfer the transferred asset is a flawed approach.
· Although we think the disclosures should focus on the nature and extent of the risks associated with the entity’s continuing involvement in assets and on the main judgement calls made in preparing the financial statements, our assessment is that the proposed disclosures go beyond that.
· Although we think the Alternative Approach has merits and is worthy of further consideration, we are against it being taken forward and implemented unless and until further work has been carried out on it.
· In our view the Alternative Approach goes far beyond the crisis-related issues and incremental changes that we believe there is an urgent need to address. For that reason, we are not in favour of it being fast-tracked.
· In our view, if fundamental changes of the kind envisaged by the Alternative Approach are to be made, there needs first to be a comprehensive consideration of the issues involved. It is therefore essential that, if the IASB ultimately decides to move forward with the Alternative Approach, it should be the subject of a separate consultation.
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