Feedback from GRAP 104 Financial Instruments Reference Group

The Reference Group begun their discussions on financial liabilities. To kick-off the topic, members met in June 2024 to understand the requirements in GRAP 104 (revised 2019) on financial guarantee contracts and revolving credit facilities.

Financial guarantee contracts

The correct identification of an instrument as a financial guarantee contract is important. A financial guarantee contract requires the issuer to make specified payments to reimburse the holder for a loss it incurs, because a specified debtor fails to make payment in accordance with the terms of the agreement between the holder and the debtor. The focus on the issuer guaranteeing specified payments is important as this feature helps entities in determining whether letters of support qualify as financial guarantee contracts. Letters of support, for example where a controlling entity guarantees the financial stability or ongoing payment of operational expenses for a controlled entity, are not financial guarantee contracts if there is no specific debt guaranteed.

Revolving credit facilities

The Reference Group discussed revolving credit facilities from the perspective of the holder of the facility. A revolving credit facility is a form of credit that provides the borrower with the ability to draw down and repay as they need for the duration of the term of the facility. A common type of revolving credit facility for holders is overdraft facilities.

The presentations on financial guarantee contracts and revolving credit facilities discussed by the Reference Group are available in the Supporting Adoption of Standards library on the ASB website.