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| Where are we with IFRS 9 – Financial Instruments? |
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This edition of our monthly Spotlight newsletter gives an overview of the current status of the IASB’s project to replace IAS 39 “Financial Instruments: Recognition and Measurement”. It illustrates which phases of that project have already been completed and gives the outlook for the remaining phases.
It also highlights some of the most important rules in the new standard IFRS 9 “Financial Instruments”, the implications of which some companies are already discussing. |
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| In November 2009, the IASB issued the chapters of IFRS 9 that relate to the classification and measurement of financial assets. The key principles of the new rules can be summarized as follows: |
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• According to the new approach, all financial assets shall be
classified either at “amortised cost” or at “fair value” depending on |
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• the entity’s business model for managing the financial
assets and |
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• the contractual cash flow characteristics of the financial
asset. |
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| Therefore, unlike IAS 39, there will be no categories except a new category called ‘Fair Value Through Other Comprehensive Income (FVTOCI)’. As a result of this new category, changes in the fair value of equity instruments not held for trading may also be recognised in other comprehensive income under certain circumstances, without subsequent reclassification to profit or loss. |
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| In October 2010, the IASB added to IFRS 9 the requirements for classifying and measuring financial liabilities, which correspond with the requirements in IAS 39 in most respects. Differences exist mainly regarding the issue of “own credit risk”. |
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| At the same time, the requirements in IAS 39 relating to the derecognition of financial assets and financial liabilities were carried forward unchanged to IFRS 9. |
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| Currently, there are ongoing discussions about the application of an expected loss model with regard to the impairment of financial assets measured at amortized cost. A re-exposure is planned for the second half of 2012. |
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| At the moment, the IASB is also fundamentally reconsidering its hedge accounting rules, and is planning to issue a final version of the new general hedge accounting requirements, for both financial and non-financial instruments, in the second half of this year. In a further project, the IASB is also addressing risk management strategies related to open portfolios (macro hedging). An exposure draft or a discussion paper on macro hedge accounting is planned for the third quarter of 2012. |
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| In January 2012, the IASB and the FASB agreed to work together to reduce differences in their respective classification and measurement models for financial instruments. The IASB will also consider the feedback received on application of IFRS 9 to particular instruments, as well as the results from its ongoing work to develop a new standard on insurance contracts, when amending the already existing classification and measurement rules of IFRS 9. The IASB intends to publish an exposure draft in the second half of 2012 of limited amendments to these parts of the standard. |
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| IFRS 9 was originally to be mandatory for periods beginning on or after January 1, 2013. Due to the delays in completing this project, the IASB has now postponed compulsory implementation of IFRS 9 and changed the effective date to January 1, 2015. |
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| Early adoption of the already published elements of IFRS 9 is permitted. However this is not possible in the European Union, because endorsement of the standard has been postponed. |
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For more information about this important topic, note that IASeminars offers the following event:
Financial Instruments Update: Where are we with IFRS 9? |
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