The final derecognition rules in IAS 39 are complex, confusing and in some parts seem contradictory. However, the bottom line appears to be that most securitisation structures will be fully “on balance sheet”. Indeed the standard itself says:
|“The board recognises that many securitisations may fail to qualify for derecognition…….|
Even if some derecognition can be achieved, it is likely that this will require the application of the continued involvement rules, which are themselves confusing.
The interaction of IAS 39 and SIC 12 may also result in the surprising consolidation of some structures.
The chart below sets out the four possible accounting options for a securitisation issue under IAS 39
Interaction with SIC 12
A helpful feature of the new standard is that the derecognition tests are designed to apply after you have applied SIC12, thus avoiding the nonsense of the previous standard when you derecognised under IAS 39 and then re-recognised after applying SIC 12.
However, SIC 12 remains problematic in its interpretation and will eventually be subsumed within a new IAS 27 on consolidations. In applying and understanding the IAS 39 derecognition rules it is important that you understand how you have applied SIC 12.
If you want to know more about IFRS accounting framework and securitisation, we refer to the Part III of our brochure Structuring securitisations transaction in Luxembourg