A. Apply derecognition criteria of IFRS 9 and U.S. GAAP to Company B’s situation below.
Company B sells a portfolio of 100 short-term receivables to a bank for cash by guaranteeing to buy back first 20 defaulted receivables at the amount due from the debtors. The historic default rates on such receivables are up to 10%. The customers are notified of the sale and pay directly to the bank. The bank may subsequently sell or pledge these receivables.
Under IFRS, should Company B derecognize this portfolio of short-term receivables? Why? (Apply IFRS 9 Financial Instruments.pdf - Appendix B3.2.1 through B3.2.5)
Under U.S. GAAP, should Company B derecognize this portfolio of short-term receivables? Why? (Apply ASC 860-10-40-5: Pay attention to example 1 of “Effective control”. Derecognition criteria of U.S. GAAP are also discussed in Intermediate Accounting book, Chapter 7, Secured Borrowing vs. Sale)
A Big Four accounting firm's website also has a publication about IFRS-US GAAP differences including derecognition criteria differences that are summarized on page 4 of Chapter 5 Financial Instruments-3.doc.