Accounting for electronic payments

Global IFRS Institute | Financial instruments

• What’s the issue?
• What is the IASB proposing?
• What's next? – Have your say by 19 July 2023^*

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Accounting for the settlement of financial assets or financial liabilities using electronic payment systems could change under new proposals issued by the International Accounting Standards Board (IASB). Under the proposals, companies that derecognise receivables or payables on the payment initiation date could see a change to their accounting.

The proposals also address other matters arising from the IASB’s post-implementation review (PIR) of IFRS 9 Financial Instruments, including the classification of financial assets with an ESG-linked feature.

The question on when to derecognise a trade receivable when it is settled using an electronic payment system seems relatively simple on the surface. However, it has generated a significant amount of debate because there is diversity in practice for both the receivable and payable sides of the transaction.

For example, consider an automated transfer system that takes three working days to clear. A typical timeline is shown in the diagram below.

When the IFRS^® Interpretations Committee considered the issue, its view was that the receivable would be derecognised on T3 if that is when the contractual right to receive cash expires. The Committee also indicated that cash would be recognised only when it is received and did not discuss the accounting for the payer. However, the Committee’s decision was not finalised because the IASB decided to address the issue by proposing amendments to the relevant standards.

The proposals clarify that a company would generally recognise and derecognise financial assets or financial liabilities on their settlement date (i.e. T3 in the diagram above).

Further, the IASB is proposing an exception that would apply only for financial liabilities. The exception would allow a company to derecognise a financial liability before the settlement date, potentially on T1 in the diagram above, when it uses an electronic payment system that meets specific criteria. In other words, the general requirements (i.e. derecognition on settlement date) would apply for:

• all payables, except for those that meet the proposed criteria; and
• all receivables without exception.

Read our summary of the amendments and have your say by 19 July 2023. For further information on the proposals, speak to your KPMG contact.