Derecognition of financial assets under IFRS 9

Factoring receivables, securitising loans and selling bonds with buy-back agreements all raise the same question: has the asset left the balance sheet? The answer changes reported debt and working capital. This guide sets out the derecognition test step by step and applies it to factoring with recourse and without recourse.

By Mirza Fahad Baig, Chartered Accountant. Reviewed by Hamza Fida, Chartered Accountant. Checked against official sources on . 3 minute read.

Short answer

Under IFRS 9, derecognition of financial assets happens when the contractual rights to the cash flows expire, or when the company transfers the asset and with it substantially all the risks and rewards of ownership. If it keeps substantially all the risks and rewards, it keeps the asset and records any cash received as a liability. If it neither keeps nor transfers them, it derecognises the asset if it has given up control, and otherwise continues to recognise it to the extent of its continuing involvement.

At a glance

Rights expired
Derecognise
Transfer test
Rights transferred, or pass-through
Risks and rewards transferred
Derecognise
Risks and rewards kept
Keep the asset, record a liability
Neither, control given up
Derecognise
Neither, control kept
Continuing involvement
Derecognition of financial assets under IFRS 9Rights expired: Derecognise; Transfer test: Rights transferred, or pass-through; Risks and rewards transferred: Derecognise; Risks and rewards kept: Keep the asset, record a liability; Neither, control given up: Derecognise; Neither, control kept: Continuing involvement.KEY FACTS AT A GLANCEDerecognition of financial assets under IFRS 9Rights expiredDerecogniseTransfer testRights transferred, orpass-throughRisks and rewards transferredDerecogniseRisks and rewards keptKeep the asset, record aliabilityNeither, control given upDerecogniseNeither, control keptContinuing involvementChecked against official sourcesTax BakersDerecognition of financial assets under IFRS 9Rights expired: Derecognise; Transfer test: Rights transferred, or pass-through; Risks and rewards transferred: Derecognise; Risks and rewards kept: Keep the asset, record a liability; Neither, control given up: Derecognise; Neither, control kept: Continuing involvement.KEY FACTS AT A GLANCEDerecognition of financial assetsunder IFRS 9Rights expiredDerecogniseTransfer testRights transferred, or pass-throughRisks and rewards transferredDerecogniseRisks and rewards keptKeep the asset, record a liabilityNeither, control given upDerecogniseNeither, control keptContinuing involvementChecked against official sourcesTax Bakers
Key facts at a glance, as set out in this guide.

How does derecognition of financial assets work?

Can the financial asset be derecognised?Can the financial asset be derecognised?Have the rights to the cash flowsbeen transferred or expired?NoKeep theassetYesHas the company kept substantiallyall the risks and rewards?YesKeep the asset,record a liabilityNoHas it transferred substantiallyall the risks and rewards?YesDerecogniseNoHas the buyer the practicalability to sell the asset?YesDerecogniseNoContinuing involvement
The test runs in order: rights, then risks and rewards, then control.
  1. Consolidate first. Apply the test at group level, after consolidating any special-purpose entities the company controls.
  2. Have the rights expired? If the cash flows have been collected or the contract has ended, derecognise.
  3. Has the asset been transferred? Either the contractual rights to receive the cash flows are transferred, or the company keeps the rights but passes the cash on under a pass-through arrangement that meets strict conditions: no obligation to pay unless it collects, no right to sell or pledge the asset, and prompt remittance.
  4. Risks and rewards. Compare the company's exposure to variability in the asset's cash flows before and after the transfer.
  5. Control. If risks and rewards are neither kept nor transferred, ask whether the buyer has the practical ability to sell the asset to a third party unilaterally.

Factoring with recourse and without recourse

A company sells trade receivables with a face value of CU 1,000,000 to a factor for CU 970,000.

ArrangementRisks and rewardsAccounting
Without recourse: the factor bears all bad debtsTransferredDerecognise the receivables; recognise a loss of CU 30,000
With full recourse: the company repays the factor for any bad debtKeptKeep the receivables of CU 1,000,000; recognise a liability of CU 970,000; the CU 30,000 is interest over the period
Recourse limited to the first 5% of losses, where expected losses are about 2%Kept, because the company still bears almost all likely lossesKeep the receivables and record a liability

Factoring with recourse is in substance a secured borrowing, so the receivables stay on the balance sheet and the cash received appears as debt, not as cash from customers.

What is continuing involvement?

When a company neither transfers nor keeps substantially all the risks and rewards, and keeps control, it continues to recognise the asset to the extent of its continuing involvement, for example the amount of a guarantee it has given, and recognises an associated liability. This is less common and the measurement rules are detailed.

Other common situations

TransactionUsually
Sale of a bond with an agreement to buy it back at a fixed price (repo)Not derecognised: the seller keeps the risks and rewards
Sale of a quoted bond with an option to buy it back at its market value thenDerecognised: the risks and rewards pass to the buyer
Securitisation where the company keeps the junior tranche absorbing most lossesNot derecognised
Supplier finance arrangementsUsually affect payables, not receivables; see IAS 7 supplier finance disclosures

When are financial liabilities derecognised?

When they are extinguished: paid, cancelled or expired, or when the terms are substantially modified, which is treated as extinguishing the old liability and recognising a new one. See modifications of financial instruments.

What must be disclosed?

IFRS 7 requires disclosures about transferred assets that are not derecognised in full, such as the carrying amounts of the assets and associated liabilities, and about continuing involvement in derecognised assets. See IFRS 9 explained and the list of IFRS standards.

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Questions people ask

When can a financial asset be derecognised under IFRS 9?

When the rights to its cash flows expire, or when it is transferred together with substantially all the risks and rewards, or with control if risks and rewards are shared.

Is factoring with recourse derecognised?

Usually not. The company keeps the credit risk, so it keeps the receivables and records the cash received as a liability.

Is factoring without recourse derecognised?

Usually yes, because the risks and rewards pass to the factor.

What is continuing involvement?

Partial recognition of an asset when risks and rewards are shared and the company keeps control, to the extent of its remaining exposure.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IFRS 9 Financial Instruments

Rules and fees change. If you are reading this long after October 4, 2026, confirm the figures with the source before you rely on them.

IFRS 9Modification of financial assets and liabilities under IFRS 9IFRS 9Classification and measurement under IFRS 9: business model and SPPIIFRS 9IFRS 9 financial instruments explained

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This guide is general information. It is not tax or legal advice for your situation.