Document ID: chunk:federal_register_of_legislation:F2024L00973:body:0:p8
Version: federal_register_of_legislation:F2024L00973
Segment Type: other
Provision Reference: 
Character Range: 19193–23995

need not perform a detailed assessment.
 ...
B4.1.13 The following examples illustrate contractual cash flows that are solely payments of principal and interest on the principal amount outstanding. This list of examples is not exhaustive.

Instrument                                                                                                                                                                                                                                     Analysis
...                                                                                                                                                                                                                                            ...
Instrument EA                                                                                                                                                                                                                                  The contractual cash flows are solely payments of principal and interest on the principal amount outstanding.
Instrument EA is a loan with an interest rate that is adjusted every reporting period by a fixed number of basis points if the debtor achieves a contractually specified reduction in carbon emissions during the preceding reporting period.  The entity considers whether the contractual cash flows that could arise both before and after each change in contractual cash flows are solely payments of principal and interest (see paragraph B4.1.10).
The maximum possible cumulative adjustments would not significantly change the interest rate on the loan.                                                                                                                                      If the contingent event of achieving the carbon emissions target occurs, the interest rate is adjusted by a fixed number of basis points, resulting in contractual cash flows that are consistent with a basic lending arrangement. It is only because the nature of the contingent event itself does not relate directly to changes in basic lending risks and costs that the entity cannot conclude – without further assessment – whether the cash flows on the financial asset are solely payments of principal and interest.
                                                                                                                                                                                                                                               The entity therefore assesses whether, in all contractually possible scenarios, the contractual cash flows would not be significantly different from the contractual cash flows on a financial instrument with identical contractual terms, but without the contingent feature linked to carbon emissions (see paragraph B4.1.10A).
                                                                                                                                                                                                                                               Because any adjustments over the life of the instrument would not result in contractual cash flows that are significantly different, the entity concludes that the loan has contractual cash flows that are solely payments of principal and interest on the principal amount outstanding.

B4.1.14 The following examples illustrate contractual cash flows that are not solely payments of principal and interest on the principal amount outstanding. This list of examples is not exhaustive.

Instrument                                                                                                                                                                                    Analysis
...                                                                                                                                                                                           ...
Instrument I                                                                                                                                                                                  The contractual cash flows are not solely payments of principal and interest on the principal amount outstanding.
Instrument I is a loan with an interest rate that is adjusted every reporting period to track the movements in a market-determined carbon price index during the preceding reporting period.  The contractual cash flows are indexed to a variable (the carbon price index), which is not a basic lending risk or cost. The contractual cash flows are therefore inconsistent with a basic lending arrangement (see paragraph B4.1.8A).

B4.1.15 In some cases a financial asset may have contractual cash flows that are described as principal and interest