Filenote

The purpose of this filenote is to outline the accounting treatment associated with the receivables securitisation arrangement with Westpac.

Introduction

AASB 9's requirements on de-recognition are complex and require interpretation in a number of areas. Factoring arrangements are often referred to as "with recourse" or "without recourse". In a "with recourse" arrangement, all or most of the credit risk remains with the entity. Such an arrangement will almost always fail the risks and rewards tests
(and possibly others). It should therefore be accounted for as a loan.

By contrast, a "without recourse" arrangement transfers all or most of the credit risk to the factor (transferee). Such an arrangement is likely to qualify for de-recognition (subject to an evaluation of other risks that might be relevant such as slow payment risk). In substance, such an arrangement could be economically similar to a sale of the receivables in which case it is accounted for accordingly.

The continuing involvement accounting requirements of IAS 39 will rarely apply in most factoring arrangements because most arrangements result in substantially all the risks and rewards being either transferred or retained. These requirements include special rules on recording and measuring continuing involvement assets and liabilities that deviate from the normal requirements of IAS 39.

Accounting Implications
When an entity factors its trade receivables, an analysis should be carried out to determine whether or not the receivables should be "de-recognised" (ie removed from the entity's statement of financial position). This analysis should be based on the entire arrangement, including any guarantees or other recourse arrangements.

An unconditional sale of receivables will result in de-recognition because all the risks and rewards are transferred (AASB 9.AG39(a)).