of May 29, 2008 No. 24109/878
To the chairman of Association
financiers of Kazakhstan
Dear Serik Akhmetzhanovich!
Present the National Bank of the Republic of Kazakhstan submits you Methodical Recommendations about reflection in financial accounting of the second level of transactions of securitization of assets by banks, and also asks you to bring them to the attention of the interested financial organizations.
Vice-chairman D. Akishev
According to Items 13) and 14) of article 1 of the Law of the Republic of Kazakhstan "About securitization", securitization is financing under concession of monetary claim by bond issue, provided with the allocated assets. At the same time, the transaction of securitization is acquisition of the rights to claim by special finance company and bond issue provided with the allocated assets.
Accounting and reflection of transactions of securitization in the financial reporting of Bank need to be performed according to requirements of paragraphs 15-42 of the International Financial Reporting Standard 39 "Financial instruments: recognition and assessment" (further - IFRS 39) and paragraphs AG 37 and AG 63 of Appendix A to IFRS 39.
Accounting of securitization is generally concentrated on regulations on derecognition of assets in this connection, the most important question in securitization accounting: whether there will be securitized asset is written off from balance, Necessary steps in case of determination of need of derecognition are given in appendix 1 to these recommendations.
The principles of derecognition of IFRS 39 are based on the model "taking into account risks and benefits" and on model of "control". Thus, for the purpose of exception of contradictions, these models need to be applied in strictly consecutive procedure, according to appendix 1.
For example, if the Bank yields right to claim on the loan portfolio of special finance company (further - SFK), at the same time, SFK has the right to use it without restrictions (for example, to sell), then in this case:
- if the Bank keeps the risks and benefits connected with the securitized asset, then control availability at SFK does not play any role and the Bank continues recognition of asset;
- if the Bank did not transfer and did not keep all risks and benefits connected with the securitized asset, then control over asset at SFK is decisive, therefore, the Bank stops its recognition.
At the same time, before estimating whether the derecognition is pertinent, the Bank determines whether it is necessary to apply these requirements to part financial aktiva1 or to financial asset in general.
According to paragraph 16 IFRS 39, regulations on derecognition are applied to part of financial asset (or parts of group of similar financial assets) when this part satisfies to one of the following three conditions:
1 term "financial asset" belongs as to part of financial asset (or parts of group of similar financial assets), or to all financial asset (or all group of similar financial assets).
1) this part includes only specially designated cash flows on financial asset (or group of similar financial assets);
2) this part includes only pro rata part of cash flows on financial asset (or group of similar financial assets), for example, the right to 90% of all cash flows;
3) this part constitutes only completely pro rata share of specially designated cash flows on financial asset (or group of similar financial assets). For example, the right to 90 percentage share of cash flows of interest payments on financial asset.
If any of the listed criteria is not carried out, requirements about derecognition are applied to financial asset in full.
The bank shall derecognize financial asset when:
- effective period of the contract law to cash flows from this financial asset expires;
- the bank transfers financial asset and at the same time transfer meets requirements of derecognition according to IFRS 39.
At the same time, according to paragraph 19 IFRS 39, it is considered that the Bank transfers financial asset, in that case if it transfers the rights to cash flows from this financial asset or speaks on behalf as the agent on data transmission of cash flows of the borrower of SFK which meets the following conditions:
- payment of the amount of SFK happens only in case of receipt of the equivalent amounts from the borrower;
- the bank has no right to sell or pledge asset, except for transfer of its SFK as providing the obligation to pay money;
- the bank shall list the money raised on behalf of SFK without essential delays. Besides, the Bank has no right to reinvest such money, except for investments into money or cash equivalents (as it is determined in IFRS (IAS) 7 "Cash flow statements"), during the short period of carrying out calculations of the date of receipt of money before date of required transfer to their final receiver, at the same time the percent earned from such investment are transferred to the final receiver.
After that, the Bank determines degree in which it keeps the risks and benefits connected with ownership of this asset and also determines whether control over this financial asset remains.
At the same time,
1) by transfer by Bank practically of all risks and benefits connected with ownership of financial asset, the Bank derecognizes financial asset and recognizes separately assets or liabilities which were created or kept by transfer;
2) when preserving all risks and benefits, recognition of financial asset continues;
The bank determines 3) whether control over financial asset if the company does not transfer remains and does not keep practically all risks and benefits connected with ownership of this asset.
Respectively, when preserving control recognition of financial asset continues in extent of participation in it, and in case of control transfer recognition of financial asset stops, and at the same time assets and liabilities which were kept by transfer are recognized.
At the same time preserving control depends on opportunity the host party to sell this asset (paragraph AG 42 of IFRS 39). For example, if SFK can sell independently asset without any limit, so control was ceded by it. In other cases control remains behind Bank.
It is possible to give the following examples when the Bank transfers to SFK considerable part of all risks and benefits:
- sale of financial asset is not limited to any other conditions;
- sale of financial asset, with the right of Bank to its redemption at fair value at the time of such repurchasing.
If transfer does not lead to derecognition because the Bank kept practically all risks and remunerations connected with ownership of the transferred asset, then in subsequent periods the Bank shall recognize all income on the transferred asset and all expenses incurred according to the financial liability (paragraph 29 IFRS 39).
Disclaimer! This text was translated by AI translator and is not a valid juridical document. No warranty. No claim. More info
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