Toward an understanding of the IAS 39 derecognition principles: An application to the factoring transactions' reporting

Lionel Escaffre () and Olivier Ramond ()
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Lionel Escaffre: GRANEM - Groupe de Recherche Angevin en Economie et Management - UA - Université d'Angers - AGROCAMPUS OUEST - Institut National de l'Horticulture et du Paysage
Olivier Ramond: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique

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Abstract: A recent report issued by the US-based audit company Ernst & Young (2006) stated that, in 2005, 23 out of the 39 French CAC 40 index companies initiated assets transfers. More specifically, 6 companies operated as transferee while 32 as assignor. Those transactions were mainly concerned with securitization and credit factoring issues. Besides, in 69% of the assets transfer cases, the companies did not derecognize the credit assets and only half of the listed firms under scrutiny provided additional disclosure regarding these operations. Similar observations can be made in other European continental countries (see Escaffre and Ramond, 2007; IFRIC, 2006a). This result highlights the current heterogeneity around the accounting treatment related to financial asset derecognition under international accounting standards and more specifically under IAS 39. Although IAS 39 contends that a financial asset derecognition should imply the transfer of both its contractual rights and most of its inherent risks to a counterparty, it fails to provide any readily-applicable models or methodologies necessary to meet these two criteria. Adopting the perspective from a credit factoring transaction ruled by civil code-based provisions, this paper aims to shed into light the potential current ambiguity and technicality surrounding the IAS 39 day-to-day application. For doing so, it first presents the IAS 39 derecognition features and then through a simple setting-based example discuss the (de)recognition of a credit assets transfer under IFRS while underlining some institutional perspectives for future standard interpretations.

Date: 2007-09-12
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Published in EUFIN Workshop on Accounting in Europe, Sep 2007, Cergy Pontoise, France

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