The PwC global network of firms submitted comments on the IFRS Interpretations Committee’s tentative agenda item regarding the classification of the liability for prepaid cards issued by a bank in the bank’s financial statements. We agree with the Committee’s conclusion that this item should not be taken onto its agenda. However, we disagree with the Committee’s observation that an entity that issues a prepaid card would apply the guidance in IFRS 9, Financial Instruments (lAS 39, Financial instruments: recognition and measurement), to determine whether and when to derecognize the liability for a prepaid card.
We note that the guidance in IFRS 9/IAS 39 would require that the liability is not derecognized until it is extinguished, even if it becomes remote that the card will be redeemed. The liability would, in some circumstances, be recognized in perpetuity because a contractual obligation to pay cash never expires for cards without an expiry date. This does not necessarily reflect the economic substance of the transaction. There is also a risk the Committee’s conclusion could be applied more widely to circumstances not considered by the Committee.