27In the Illustrative Examples, paragraphs 5 and 14 are amended to read as follows:

27 In the Illustrative Examples, paragraphs 5 and 14 are amended to read as follows:

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For a sale and repurchase agreement on an asset other than a financial asset, the terms of the agreement need to be analysed to ascertain whether, in substance, the seller has transferred the risks and rewards of ownership to the buyer and hence revenue is recognised. When the seller has retained the risks and rewards of ownership, even though legal title has been transferred, the transaction is a financing arrangement and does not give rise to revenue. For a sale and repurchase agreement on a financial asset, AASB 9 Financial Instruments applies.

14 Financial service fees

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(a) Fees that are an integral part of the effective interest rate of a financial instrument

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(i) Origination fees received by the entity relating to the creation or acquisition of a financial asset other than one that under AASB 9 is measured at fair value through profit or loss

Such fees may include compensation for activities such as evaluating the borrower’s financial condition, evaluating and recording guarantees, collateral and other security arrangements, negotiating the terms of the instrument, preparing and processing documents and closing the transaction. These fees are an integral part of generating an involvement with the resulting financial instrument and, together with the related transaction costs1 (as defined in AASB 139), are deferred and recognised as an adjustment to the effective interest rate.

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1 In AASB 2008-5 Amendments to Australian Accounting Standards arising from the Annual Improvements Project, issued in July 2008, the Board replaced the term ‘direct costs’ with ‘transaction costs’ as defined in paragraph 9 of AASB 139. This amendment removed an inconsistency for costs incurred in originating financial assets and liabilities that should be deferred and recognised as an adjustment to the underlying effective interest rate. ‘Direct costs’, as previously defined, did not require such costs to be incremental.

(ii) Commitment fees received by the entity to originate a loan when the loan commitment is outside the scope of AASB 9

If it is probable that the entity will enter into a specific lending arrangement and the loan commitment is not within the scope of AASB 9, the commitment fee received is regarded as compensation for an ongoing involvement with the acquisition of a financial instrument and, together with the related transaction costs (as defined in AASB 139), is deferred and recognised as an adjustment to the effective interest rate. If the commitment expires without the entity making the loan, the fee is recognised as revenue on expiry. Loan commitments that are within the scope of AASB 9 are accounted for as derivatives and measured at fair value.