This free, guided checker walks your finance team through the key decision points for IFRS 9 Continuing Involvement and Servicing Rights. Answer a few questions to see the likely treatment and the evidence to document.
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This tool is a high-level IFRS screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
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Securitizations, factoring with recourse, and loan sales with retained servicing all require IFRS 9.3.2 derecognition analysis before measuring retained interests. First confirm a transfer occurred under IFRS 9.3.2.4, or that a pass-through arrangement meets the IFRS 9.3.2.5 conditions. If the rights have not expired and no transfer occurred, the asset stays on balance sheet.
No transfer of contractual cash flow rights or qualifying pass-through has occurred and the rights have not expired, so continue to recognize the financial asset in full (IFRS 9.3.2.3).
Official guidance: IFRS issued standards
Compare credit risk, interest rate risk, prepayment benefits, and late-payment exposure before and after transfer; repurchase at fair value generally transfers substantially all risks and rewards. Where the outcome is not obvious, compute and compare the entity's exposure to the variability in the present value of net cash flows before and after the transfer (IFRS 9.3.2.7).
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Official guidance: IFRS issued standards
On derecognition, the entity recognizes any retained interest as a separate asset or liability at fair value, with subsequent measurement generally at FVTPL unless another category applies. A new asset obtained or liability assumed is recognized at fair value under IFRS 9.3.2.11; a retained part of a larger asset is measured by allocating the carrying amount on a relative fair value basis under IFRS 9.3.2.13.
Complete the fair value measurement of the retained interest before finalizing the derecognition gain or loss (IFRS 9.3.2.11; IFRS 9.3.2.13).
Official guidance: IFRS issued standards
Continuing involvement through guarantee, call option, or servicing that restricts the transferee's ability to sell may result in continued recognition of the asset to the extent of retained exposure. Control turns on the transferee's practical, not merely contractual, ability to sell the asset unilaterally to an unrelated party (IFRS 9.3.2.9).
Control is not retained; derecognize the asset and recognize separately any rights or obligations created in the transfer, with the gain or loss in profit or loss (IFRS 9.3.2.6(c); IFRS 9.3.2.12).
Official guidance: IFRS issued standards
When control is retained, the entity continues to recognize the asset to the extent of its continuing involvement, typically as a retained interest or repurchase obligation, and recognizes an associated liability (IFRS 9.3.2.16-17). For a guaranteed asset, continuing involvement is measured at the lower of the asset's carrying amount and the maximum consideration the entity could be required to repay.
Apply the continuing-involvement measurement to the extent of retained exposure and recognize the associated liability before recognizing servicing components (IFRS 9.3.2.16; IFRS 9.3.2.17).
Official guidance: IFRS issued standards
Servicing includes collection, remittance, default management, and reporting; compensation may be fixed fee, percentage of collections, or cost-plus arrangement. Where a transfer qualifies for derecognition and the entity retains the right to service for a fee, a servicing asset or liability is recognized under IFRS 9.3.2.10 depending on whether the fee is adequate.
Recognize the retained interest at fair value with no separate servicing asset or liability (IFRS 9.3.2.11).
Official guidance: IFRS issued standards
Adequate compensation is the amount that would reasonably pay a willing market participant for performing the service; above-market fees create a servicing asset, below-market fees a servicing liability. Benchmark the contractual fee against third-party servicing rates over the expected servicing life before concluding (IFRS 9.3.2.10).
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Official guidance: IFRS issued standards
Inadequate compensation requires recognizing a servicing liability for the fair value of the below-market servicing obligation over the contract life. Confirm the direction of the difference between the contractual fee and adequate compensation before concluding whether a servicing asset or a servicing liability is recognized (IFRS 9.3.2.10).
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Official guidance: IFRS issued standards
Servicing assets and liabilities are recognized separately from the retained interest. A servicing liability is recognized at fair value where the fee is inadequate; a servicing asset is measured by allocating the carrying amount of the larger asset on a relative fair value basis (IFRS 9.3.2.10; IFRS 9.3.2.13). Subsequent measurement is generally FVTPL unless amortized cost criteria are met.
Complete the initial measurement of the servicing asset or liability before finalizing the transfer accounting (IFRS 9.3.2.10; IFRS 9.3.2.13).
Official guidance: IFRS issued standards
Retained interests that expose the transferor to credit risk require IFRS 9 impairment assessment under the general or simplified approach as applicable. Amortized cost and FVOCI debt exposures and financial guarantee contracts are within the ECL model; exposures measured at FVTPL are not, because credit risk is already reflected in fair value (IFRS 9.5.5.1).
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Official guidance: IFRS issued standards
Allocate previous carrying amount between the part derecognised and the part retained on a relative fair value basis; treat a retained servicing asset as a part that continues to be recognized (IFRS 9.3.2.13). On full derecognition the gain or loss is consideration received less carrying amount (IFRS 9.3.2.12); on partial derecognition it is measured against the allocated carrying amount.
Complete the relative fair value allocation between the derecognized and retained portions before posting the derecognition gain or loss (IFRS 9.3.2.13).
Official guidance: IFRS issued standards
Servicing fee income is recognized over the service period; fair value changes on retained interests and servicing assets generally flow through profit or loss unless FVOCI applies (IFRS 9.5.7.1). Impairment gains and losses on retained credit exposure are presented as a separate ECL line (IFRS 9.5.5.8), not netted against fee income.
Continuing-involvement accounting is complete: retained interest and servicing components are at fair value and gains, losses, and ECL are correctly presented (IFRS 9.5.7.1). Correct the profit or loss presentation of servicing fees, fair value changes, and impairment on retained interests (IFRS 9.5.7.1; IFRS 9.5.5.8).
Official guidance: IFRS issued standards
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