Journal of Accounting and Management Information Systems (JAMIS)

Topical aspects of recognition and derecognition in the financial instruments accounting

Supp/2006 ,   p240..249


Keywords:   recognition, derecognition, transfer, control, continuing involvement

Knowing the mechanism of the financial instruments is essential in a period when the financial market becomes more important. Banks and entities are dealing with financial instruments every day, buying and selling, recognizing and derecognizing financial instruments in their entirety or parts of them.
Lately, there have been made certain changes regarding derecognition of financial instruments, especially of financial assets. It has been introduced the notion of “a transfer” and an entity should evaluate whether it has transferred or retained all substantially risks and rewards of the ownership. If an entity has neither transferred nor retained substantially all the risks and rewards of ownership of the transferred asset, it assesses whether it has retained control over the transferred asset. The present requirement is that the evaluation of the transfer of risks and rewards of ownership precedes the evaluation of the transfer of control for all derecognition transactions.
The international accounting literature on this subject is rather poor, taking into account the novelty of these aspects. In this context, the paper reviews all topical aspects of this matter, considering the latest revising of international accounting standards and emphasizing the steps an entity should follow for the evaluation of whether and to what extent a financial asset is derecognised, but also presents case studies of illustrating the application of the recognition and derecognition criteria for financial instruments.