ED/2017/3 – Prepayment Features with Negative Compensation

The International Accounting Standards Board (IASB) has published the above Exposure Draft (ED) proposing minor amendments to IFRS 9 Financial Instruments.

Some debt instruments have contractual terms that permit the issuer to prepay the instrument at a variable amount that could differ from the unpaid amounts of principal and interest. In effect this could result in the lender having to pay compensation to the borrower, even though it is the borrower which chooses to prepay the debt.

The Exposure draft proposes to amend IFRS 9 to permit lenders to measure debt instruments with such prepayment features at amortised cost, notwithstanding that such features would cause the instrument to fail the ‘solely payment of principal and interest’ test and therefore would otherwise result in such financial assets to be measured at fair value through profit or loss.

Comments on the ED are requested by 24 May 2017.

Further information, including a link to the ED, is available from the IASB web site here.