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Derecognising factored trade receivables sold without recourse to the seller
Q4 suggests the above statement is the faithful representation. Could you elaborate more about the above statement?
Faithful representation can be paraphrased as ‘substance over form’
In the above situation of factoring receivables, IF there had been recourse against the seller, then that sale to the factor should not be recognised as a sale because the factor will come back to the seller and reclaim any money forwarded to the seller in respect of these unpaid receivables
But in the situation above, there is NO recourse to the seller so the accounts receivable ‘sold’ to the factor have in fact been sold
And therefore they SHOULD be de-recognised – faithfully representation
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