Definitions
IN8. The Standard amends the definition of 'originated loans and receivables' to become 'loans and receivables'. Under the revised definition, an entity is permitted to classify as loans and receivables purchased loans that are not quoted in an active market.
Derecognition of a Financial Asset
IN9. Under the original IAS 39, several concepts governed when a financial asset should be derecognised. Although the revised Standard retains the two main concepts of risks and rewards and control, it clarifies that the evaluation of the transfer of risks and rewards of ownership precedes the evaluation of the transfer of control for all derecognition transactions.
IN10. Under the Standard, an entity determines what asset is to be considered for derecognition. The Standard requires a part of a larger financial asset to be considered for derecognition if, and only if, the part is one of:
(a) specifically identified cash flows from a financial asset; or
(b) a fully proportionate (pro rata) share of the cash flows from a financial asset; or
(c) a fully proportionate (pro rata) share of specifically identified cash flows from a financial asset.
In all other cases, the Standard requires the financial asset to be considered for derecognition in its entirety.
IN11. The Standard introduces the notion of a 'transfer' of a financial asset. A financial asset is derecognised when (a) an entity has transferred a financial asset and (b) the transfer qualifies for derecognition.

IN12. The Standard states that an entity has transferred a financial asset if, and only if, it either:
(a) retains the contractual rights to receive the cash flows of the financial asset, but assumes a contractual obligation to pay those cash flows to one or more recipients in an arrangement that meets three specified conditions; or
(b) transfers the contractual rights to receive the cash flows of a financial asset.
IN13. Under the Standard, if an entity has transferred a financial asset, it assesses whether it has transferred substantially all the risks and rewards of ownership of the transferred asset. If an entity has retained substantially all such risks and rewards, it continues to recognise the transferred asset. If it has transferred substantially all such risks and rewards, it derecognises the transferred asset.
IN14. The Standard specifies that if an entity has neither transferred nor retained substantially all the risks and rewards of ownership of the transferred asset, it assesses whether it has retained control over the transferred asset. If it has retained control, the entity continues to recognise the transferred asset to the extent of its continuing involvement in the transferred asset. If it has not retained control, the entity derecognises the transferred asset.
IN15. The Standard provides guidance on how to apply the concepts of risks and rewards and of control.

Measurement: Fair Value Option
IN16. The Standard permits an entity to designate any financial asset or financial liability on initial recognition as one to be measured at fair value, with changes in fair value recognised in profit or loss. To impose discipline on this categorisation, an entity is precluded from reclassifying financial instruments into or out of this category.
IN17. The option previously contained in IAS 39 to recognise in profit or loss gains and losses on available-for-sale financial assets has been eliminated. Such an option is no longer necessary because under the amendments to IAS 39 an entity is now permitted by designation to measure any financial asset or financial liability at fair value with gains and losses recognised in profit or loss.

How to Determine Fair Value
IN18. The Standard provides the following additional guidance about how to determine fair values using valuation techniques.
•   The objective is to establish what the transaction price would have been on the measurement date in an arm's length exchange motivated by normal business considerations.
•   A valuation technique (a) incorporates all factors that market participants would consider in setting a price and (b) is consistent with accepted economic methodologies for pricing financial instruments.
•   In applying valuation techniques, an entity uses estimates and assumptions that are consistent with available information about the estimates and assumptions that market participants would use in setting a price for the financial instrument.
•   The best estimate of fair value at initial recognition of a financial instrument that is not quoted in an active market is the transaction price unless the fair value of the instrument is evidenced by other observable market transactions or is based on a valuation technique whose variables include only data from observable markets.

IN19. The Standard also clarifies that the fair value of a liability with a demand feature, eg a demand deposit, is not less than the amount payable on demand, discounted from the first date that the amount could be required to be paid.
Impairment of Financial Assets
IN20. The Standard clarifies that an impairment loss is recognised only when it has been incurred. It also provides additional guidance on what events provide objective evidence of impairment for investments in equity instruments.
IN21. The Standard provides additional guidance about how to evaluate impairment that is inherent in a group of loans, receivables or held-to-maturity investments, but cannot yet be identified with any individual financial asset in the group, as follows:
•   An asset that is individually assessed for impairment and found to be impaired should not be included in a group of assets that are collectively assessed for impairment.
•   An asset that has been individually assessed for impairment and found not to be individually impaired should be included in a collective assessment of impairment. The occurrence of an event or a combination of events should not be a precondition for including an asset in a group of assets that are collectively evaluated for impairment.
•   When performing a collective assessment of impairment, an entity groups assets by similar credit risk characteristics that are indicative of the debtors' ability to pay all amounts due according to the contractual terms.

•   Contractual cash flows and historical loss experience provide the basis for estimating expected cash flows. Historical loss rates are adjusted on the basis of relevant observable data that reflect current economic conditions.
•   The methodology for measuring impairment should ensure that an impairment loss is not recognised on the initial recognition of an asset.
IN22. The Standard requires that impairment losses on available-for-sale equity instruments cannot be reversed through profit or loss, ie any subsequent increase in fair value is recognised in equity.

Hedge Accounting
IN23. Hedges of firm commitments are now treated as fair value hedges rather than cash flow hedges. However, the Standard clarifies that a hedge of the foreign currency risk of a firm commitment can be treated as either a cash flow hedge or a fair value hedge.
IN24. The Standard requires that when a hedged forecast transaction occurs and results in the recognition of a financial asset or a financial liability, the gain or loss deferred in equity does not adjust the initial carrying amount of the asset or liability (ie basis adjustment is prohibited), but remains in equity and is recognised in profit or loss consistently with the recognition of gains and losses on the asset or liability. For hedges of forecast transactions that result in the recognition of a non-financial asset or a non-financial liability, the entity has a choice of whether to apply basis adjustment or retain the hedging gain or loss in equity and report it in profit or loss when the asset or liability affects profit or loss.

IN24A. This Standard permits fair value hedge accounting to be used more readily for a portfolio hedge of interest rate risk than previous versions of IAS 39. In particular, for such a hedge, it allows:
(a) the hedged item to be designated as an amount of a currency (eg an amount of dollars, euro, pounds or rand) rather than as individual assets (or liabilities).
(b) the gain or loss attributable to the hedged item to be presented either:
(i) in a single separate line item within assets, for those repricing time periods for which the hedged item is an asset; or
(ii) in a single separate line item within liabilities, for those repricing time periods for which the hedged item is a liability.

(c) prepayment risk to be incorporated by scheduling prepayable items into repricing time periods based on expected, rather than contractual, repricing dates. However, when the portion hedged is based on expected repricing dates, the effect that changes in the hedged interest rate have on those expected repricing dates are included when determining the change in the fair value of the hedged item. Consequently, if a portfolio that contains prepayable items is hedged with a non-prepayable derivative, ineffectiveness arises if the dates on which items in the hedged portfolio are expected to prepay are revised, or actual prepayment dates differ from those expected.

Editorial note: Inserted by Amendments to IAS 39, March 2004 with effect for annual periods beginning on or after 1 January 2005. An entity shall apply the amendments to an earlier period when it applies IAS 39 (as revised in 2003) and IAS 32 (as revised in 2003) to that period.
Disclosure
IN25. The disclosure requirements previously in IAS 39 have been moved to IAS 32.
Amendments to and Withdrawal of Other Pronouncements
IN26. As a consequence of the revisions to this Standard, the Implementation Guidance developed by IASC's IAS 39 Implementation Guidance Committee is superseded by this Standard and its accompanying Implementation Guidance.