According to the "Basic Standards for Enterprise Accounting," the Ministry of Finance issued Accounting Standard for Business Enterprises No. 23—Transfer of Financial Assets on 2 15, 2006, effective as of 1 1, 2007. (Note: This standard was revised in 2017.)
1. Overview of Guidelines
Transfer of financial assets refers to a situation where an entity (the transferor) assigns or delivers a financial asset (or its cash flows) to another party other than the issuer of that financial asset (the transferee).
Two Methods of Transferring Financial Assets
- • Transfer of the contractual right to collect cash flows from a financial asset to another party
- • Retain the contractual right to collect cash flows from financial assets but assume a contractual obligation to pass those cash flows on to one or more ultimate recipients ("pass-through arrangement")
II. Three Conditions for Pass-Through Arrangements
- The obligation to pass on cash flows to the ultimate recipient exists only when equal cash flows are received from the financial asset.
- Per the contract terms, this financial asset cannot be sold or pledged as collateral, but it may serve as a guarantee of cash flows to the ultimate payee.
- Must remit collected cash flows to the ultimate payee promptly.
3. Derecognition and Continuing Recognition
Terminate Confirmation
An enterprise shall derecognize a financial asset when it has transferred substantially all risks and rewards of ownership to the transferee.
Confirm
If the enterprise retains substantially all risks and rewards of ownership of a financial asset, it shall not derecognize the financial asset but continue to recognize the transferred financial asset in its entirety.
Continue exploring
If an entity has neither transferred nor retained substantially all the risks and rewards of ownership of a financial asset, it shall determine whether it has relinquished control over that financial asset. If control has not been relinquished, the entity shall recognize relevant financial assets and financial liabilities to the extent of its continuing involvement in the transferred financial asset.
Regulatory Document Attachment
Accounting Standards for Business Enterprises No. 23 — Transfer of Financial Assets (2006 Edition) (PDF)