IFRIC issues Interpretation on the reassessment of embedded derivatives

01 March 2006

The International Financial Reporting Interpretations Committee (IFRIC) issued an Interpretation on IFRIC 9 which clarifies certain aspects of the treatment of embedded derivatives under IAS 39.

IAS 39 describes an embedded derivative as a component of a hybrid (combined) instrument that also includes a non-derivative host contract. IAS 39 requires embedded derivatives to be separately recognised and measured when the entity first becomes a party to the contract.

The IFRIC was asked whether the treatment of an embedded derivative has to be reassessed subsequently if certain events occur. IFRIC 9 concludes that reassessment is prohibited unless there is a change in the terms of the contract that significantly modifies the cash flows that otherwise would be required under the contract, in which case reassessment is required.

Press release

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