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 Introduction 
 Classification 
 Recognition and Measurement 
 Impairment 
 Derecognition
Date Phase Completed 
November 12, 2009 IASB issued IFRS 9 Financial Instruments 
as the first step in its project to repl...
Date Phase Completed 
December 16, 2011 Amended effective date of IFRS 9 to January 
1, 2015. 
November 19, 2013 IASB issu...
IAS 39 IFRS 9 
Classification of 
financial assets 
Four categories: 
-Fair value through 
profit or loss (FVTPL) 
-Loans ...
IAS 39 IFRS 9 
Classification of 
financial 
liabilities 
Two categories: 
-Fair value through 
profit or loss (FVTPL) 
-A...
IAS 39 IFRS 9 
Hybrid contracts 
(contracts with 
embedded 
derivatives) 
Separate (bifurcate) 
if the embedded 
derivativ...
 vDebt 
instrument? 
Derivative? 
Equity 
instrument? 
‘Hold-to-collect’ 
contractual cash flows 
business model? 
Cash f...
 IFRS 9 paragraph 4.1.2: 
“A financial asset shall be measured at amortized 
cost if both of the following conditions are...
 Examples of financial instruments that are 
likely to be classified and measured at 
amortized cost under IFRS 9 include...
 ‘Hold-to-collect’ business model test 
 The entity’s objective is to hold the financial asset to 
collect the contractu...
 ‘SPPI’ contractual cash flow characteristics test 
 Contractual terms of the financial asset give rise to 
cash flows t...
 IFRS 9 paragraph 4.1.2A: 
“A financial asset shall be measured at fair value through 
other comprehensive income if both...
 Business model test: 
 Both collecting contractual cash flows and selling 
financial assets are integral to achieving t...
 For debt financial instruments classified as 
FVTOCI: 
 Fair value changes are recognized in OCI 
 Interest revenue, f...
 IFRS 9 paragraph 4.1.4: 
“However, an entity may make an irrevocable 
election at initial recognition for particular 
in...
 For equity investments elected to be 
classified as FVTOCI: 
 Not held for trading 
 Fair value changes are recognized...
 IFRS 9 paragraph 4.1.4: 
“A financial asset shall be measured at fair 
value through profit or loss unless it is 
measur...
 IFRS 9 paragraph 4.1.5: 
“Despite paragraphs 4.1.1-4.1.4, an entity may, at 
initial recognition, irrevocably designate ...
 A financial asset is classified and measured at 
fair value through profit or loss (FVTPL) if it is: 
 A held-for-tradi...
 Examples of financial instruments that are likely 
to fall under the FVTPL category include: 
 Investments in shares of...
 The ‘fair value option’ (FVO) 
 The designation is irrevocable. 
 More commonly used by financial institutions.
Financial liabilities 
at amortized cost 
Financial liabilities 
at fair value 
through profit or 
loss (FVTPL) 
Guidance ...
 IFRS 9 requires all financial liabilities to be 
measured at amortized cost unless: 
 The financial liability is requir...
 IFRS 9 requires all financial liabilities to be 
measured at amortized cost unless: 
 The financial liability commits t...
 Examples of financial liabilities that are likely 
to be classified and measured at amortized 
cost include: 
 Trade pa...
 In accordance with IFRS 9, financial liabilities 
are to be measured at fair value through 
profit or loss if either: 
...
 Examples of financial liabilities that are likely to 
be classified and measured at fair value through 
profit or loss (...
 Fair value option (FVO) 
 IFRS 9 permits an entity to designate financial 
liabilities at FVTPL if any of the following...
 Fair value option (FVO) 
 If the entity uses the fair value option (FVO), 
changes in fair value that relate to changes...
 Financial guarantee contracts 
 Commitments to provide a loan at a below 
market interest rate 
 Financial liabilities...
 IFRS 9 has eliminated the requirement to 
separately account for embedded derivatives 
for financial assets. Instead, IF...
 IFRS 9 requires the reclassification of financial 
assets if an entity changes its business model. 
 Must be determined...
 The following changes in circumstances are 
NOT considered changes in the overall 
business model of the entity: 
 An e...
 Reclassification mechanics: 
 Accounted for prospectively from the 
reclassification date 
 Entities are not permitted...
 Initial Measurement: 
 At fair value, plus for those financial assets and 
liabilities not classified at fair value thr...
 An entity shall recognize a loss allowance for 
expected credit losses on a financial asset that is 
measured as FAAC or...
 At initial recognition, an entity recognizes a loss allowance equal 
to 12 months expected credit losses (present value ...
Stage 1 2 3 
Recognition of 
impairment 
12 month 
expected 
credit losses 
Lifetime expected credit loss 
Recognition of ...
General 
Approach 
Simplified 
Approach 
Short-term trade receivables  
Long-term trade receivables Policy election at en...
IFRS 9 Overview (For all Accountants)
IFRS 9 Overview (For all Accountants)
IFRS 9 Overview (For all Accountants)
IFRS 9 Overview (For all Accountants)
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IFRS 9 Overview (For all Accountants)

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It is the description of IFRS 9 with some of the revisions. Will be helpful for all accountants. *not owned by me*

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IFRS 9 Overview (For all Accountants)

  1. 1.  Introduction  Classification  Recognition and Measurement  Impairment  Derecognition
  2. 2. Date Phase Completed November 12, 2009 IASB issued IFRS 9 Financial Instruments as the first step in its project to replace IAS 39. Introduced new requirements for classification and measurement of financial assets. Effective date January 1, 2013 with early adoption permitted. October 28, 2010 IASB reissued IFRS 9, incorporating new requirements on accounting for financial liabilities, carrying over IAS 39 requirements of derecognition.
  3. 3. Date Phase Completed December 16, 2011 Amended effective date of IFRS 9 to January 1, 2015. November 19, 2013 IASB issued IFRS 9 Financial Instruments to include the new general hedge accounting model, allow early adoption of the treatment of fair value changes due to own credit on liabilities designated at FVPL and remove January 1, 2015 effective date. July 24, 2014 IASB issued the final version of IFRS 9 incorporating a new expected credit loss impairment model. Supersedes all versions. Effective January 1, 2018 with early adoption permitted.
  4. 4. IAS 39 IFRS 9 Classification of financial assets Four categories: -Fair value through profit or loss (FVTPL) -Loans and receivables -Held to maturity (HTM) -Available-for-sale financial assets Three categories: -Amortized cost -Fair value through other comprehensive income (FVTOCI) -Fair value through profit or loss (FVTPL)
  5. 5. IAS 39 IFRS 9 Classification of financial liabilities Two categories: -Fair value through profit or loss (FVTPL) -Amortized cost No change to categories. However, for financial liabilities designated at FVTPL under the fair value option, the fair value changes arising from changes in the entity’s own credit risk are recognized in OCI.
  6. 6. IAS 39 IFRS 9 Hybrid contracts (contracts with embedded derivatives) Separate (bifurcate) if the embedded derivative is not closely related to the host contract and the entire contract is not measured at FVTPL. No separation (bifurcation) for financial assets. Separation (bifurcation) remains for financial liabilities and contracts for non-financial assets and liabilities
  7. 7.  vDebt instrument? Derivative? Equity instrument? ‘Hold-to-collect’ contractual cash flows business model? Cash flows that are solely payments of principal and interest (SPPI)? Conditional fair value option (FVO) elected? Financial assets at fair value through profit or loss (FVTPL) Financial assets at amortized cost Financial assets at FVTOCI (with recycling) Held for trading? FVOCI option elected? Financial assets at FVTOCI (no recycling) NO NO YES YES YES NO NO YES NO YES YES NO YES YES NO
  8. 8.  IFRS 9 paragraph 4.1.2: “A financial asset shall be measured at amortized cost if both of the following conditions are met: a. the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows (‘hold-to- collect’ business model test); and b. the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding (‘SPPI’ contractual cash flow characteristics test).
  9. 9.  Examples of financial instruments that are likely to be classified and measured at amortized cost under IFRS 9 include:  Trade receivables  Loan receivables  Investments in government bonds that are not held for trading  Investments in term deposits at standard interest rates
  10. 10.  ‘Hold-to-collect’ business model test  The entity’s objective is to hold the financial asset to collect the contractual cash flows from the financial asset, done at an aggregate level.  IFRS 9 does not require that the financial asset is always held until its maturity.  Key management personnel (KMP) determine whether a financial asset meets the business model test (facts and circumstances, how an entity is managed, type of information provided to management).
  11. 11.  ‘SPPI’ contractual cash flow characteristics test  Contractual terms of the financial asset give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding on specified dates , done at an instrument level  Interest is deemed to be the consideration for the time value of money and credit risk  Prepayment and extension options do not necessarily violate the SPPI contractual cash flow characteristics test
  12. 12.  IFRS 9 paragraph 4.1.2A: “A financial asset shall be measured at fair value through other comprehensive income if both of the following conditions are met: a. the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets (business model test); and b. the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding (‘SPPI’ contractual cash flow characteristics test).
  13. 13.  Business model test:  Both collecting contractual cash flows and selling financial assets are integral to achieving the objective of the business model  Example: the objective of the business model may be to manage everyday liquidity needs, to maintain a particular interest yield profile or to match the duration of the financial assets to the duration of the liabilities that those assets are funding  This will typically involve greater frequency and value of sales of financial assets
  14. 14.  For debt financial instruments classified as FVTOCI:  Fair value changes are recognized in OCI  Interest revenue, foreign exchange revaluation and impairment losses or reversals are recognized in profit or loss  Upon derecognition, the net cumulative fair value gains or losses are recycled to profit or loss (with recycling)
  15. 15.  IFRS 9 paragraph 4.1.4: “However, an entity may make an irrevocable election at initial recognition for particular investments in equity instruments that would otherwise be measured at fair value through profit or loss to present subsequent changes in fair value through other comprehensive income.”
  16. 16.  For equity investments elected to be classified as FVTOCI:  Not held for trading  Fair value changes are recognized in OCI  Dividends are recognized in profit or loss  On disposal, cumulative fair value changes are required to remain in OCI, however entities have the ability to transfer amounts between reserves within equity (no recycling)
  17. 17.  IFRS 9 paragraph 4.1.4: “A financial asset shall be measured at fair value through profit or loss unless it is measured at amortized cost in accordance with paragraph 4.1.2 or at fair value through other comprehensive income in accordance with paragraph 4.1.2A.”
  18. 18.  IFRS 9 paragraph 4.1.5: “Despite paragraphs 4.1.1-4.1.4, an entity may, at initial recognition, irrevocably designate a financial asset as measured at fair value through profit or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as an ‘accounting mismatch’) that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases.” (fair value option)
  19. 19.  A financial asset is classified and measured at fair value through profit or loss (FVTPL) if it is:  A held-for-trading financial asset (a derivative that has not been designated in a hedging relationship, or a financial asset that is held for the purposes of short-term sale or repurchase)  A debt instrument that does not qualify to be measured at amortized cost  An equity instrument for which the entity has not elected to classify the instrument as FVTOCI  A financial asset where the entity has elected to measure the asset at FVTPL under the fair value option (FVO)
  20. 20.  Examples of financial instruments that are likely to fall under the FVTPL category include:  Investments in shares of listed companies that the entity has not elected to account for it as at FVTOCI  Derivatives that have not been designated in a hedging relationship (interest rate swaps, commodity futures/options contracts, foreign exchange futures/options contracts)  Investments in convertible notes, commodity linked bonds  Contingent consideration receivable from the sale of a business
  21. 21.  The ‘fair value option’ (FVO)  The designation is irrevocable.  More commonly used by financial institutions.
  22. 22. Financial liabilities at amortized cost Financial liabilities at fair value through profit or loss (FVTPL) Guidance on specific financial liabilities
  23. 23.  IFRS 9 requires all financial liabilities to be measured at amortized cost unless:  The financial liability is required to be measured at FVTPL because it is held for trading  The financial liability arise when a transfer of financial asset does not qualify for derecognition or when the continuing involvement approach applies  The financial liability is a financial guarantee contract
  24. 24.  IFRS 9 requires all financial liabilities to be measured at amortized cost unless:  The financial liability commits to provide a loan at a below-market interest rate  The financial liability is a contingent consideration recognized by an acquirer in a business combination to which IFRS 3 applies  The entity elects to measure the financial liability at FVTPL (fair value option)
  25. 25.  Examples of financial liabilities that are likely to be classified and measured at amortized cost include:  Trade payables  Loan payable with standard interest rates (such as benchmark rate plus a margin)  Bank borrowings
  26. 26.  In accordance with IFRS 9, financial liabilities are to be measured at fair value through profit or loss if either:  The financial liability is required to be measured at FVTPL because it is held for trading (e.g. Derivatives that have not been designated in a hedging relationship)  The entity elects to measure the financial liability at FVTPL (fair value option)
  27. 27.  Examples of financial liabilities that are likely to be classified and measured at fair value through profit or loss (FVTPL) include:  Derivatives that have not been designated in a hedging relationship (interest rate swaps, commodity futures/options contracts, foreign exchange futures/options contracts)  Convertible note liabilities that have been designated as FVTPL  Contingent consideration payable that arise from business combination
  28. 28.  Fair value option (FVO)  IFRS 9 permits an entity to designate financial liabilities at FVTPL if any of the following apply: ▪ If electing fair value will eliminate or reduce an accounting mismatch ▪ If the financial liability is managed and evaluated on a fair value basis with other financial liabilities or financial assets and liabilities as a group ▪ A hybrid contract (e.g. A convertible note or a loan with a leveraged interest rate) contains an embedded derivative that would otherwise be required to be separated.
  29. 29.  Fair value option (FVO)  If the entity uses the fair value option (FVO), changes in fair value that relate to changes in the entity’s own credit status are presented in other comprehensive income instead of profit or loss. However, if it creates or enlarges an accounting mismatch in profit or loss, then all gains or loss are required to be presented in profit or loss.  This is not subsequently recycled to profit or loss when the financial liability is derecognized.
  30. 30.  Financial guarantee contracts  Commitments to provide a loan at a below market interest rate  Financial liabilities resulting from the transfer of a financial asset that does not qualify for derecognition or when the continuing involvement approach applies  These are subsequently measured differently (neither at amortized cost or fair value)
  31. 31.  IFRS 9 has eliminated the requirement to separately account for embedded derivatives for financial assets. Instead, IFRS 9 requires entities to assess the hybrid contract as a whole for classification.  Bifurcation is still applicable for embedded derivatives for financial liabilities as also required by IAS 39 previously.
  32. 32.  IFRS 9 requires the reclassification of financial assets if an entity changes its business model.  Must be determined by senior management as a result of an external or internal change  Must be a significant change to the entity’s operation  These are expected to be rare and infrequent events  An entity shall not reclassify any financial liability.
  33. 33.  The following changes in circumstances are NOT considered changes in the overall business model of the entity:  An entity changes its intention in relation to a specific financial asset  The temporary disappearance of a particular market for financial assets  The transfer of financial assets between different parts of an entity that have different business models
  34. 34.  Reclassification mechanics:  Accounted for prospectively from the reclassification date  Entities are not permitted to restate previously recognized gains, losses or interest  Additional disclosures apply when an entity reclassifies its debt instruments
  35. 35.  Initial Measurement:  At fair value, plus for those financial assets and liabilities not classified at fair value through profit or loss, directly attributable transaction costs.  Subsequent Measurement: Classification Valuation FV Changes Interest/ Dividends Impair-ment Forex FAFVPL FV PL PL PL PL FAFVOCI FV OCI* PL PL/OCI PL/OCI FAAC Amortized Cost None PL PL PL
  36. 36.  An entity shall recognize a loss allowance for expected credit losses on a financial asset that is measured as FAAC or FAFVOCI, a lease receivable, a contract asset or a loan commitment and a financial guarantee.  The new impairment model establishes a three-stage approach, based on changes in expected credit losses of a financial instrument. This determines the recognition of impairment (as well as the recognition of interest revenue).
  37. 37.  At initial recognition, an entity recognizes a loss allowance equal to 12 months expected credit losses (present value of all cash shortfalls over the remaining life, discounted at the original effective interest rate).  After initial recognition, the 3-stage expected credit loss model applies as follow:  Stage 1: credit risk has not increased significantly since initial recognition – entities continue to recognize 12 months expected losses, updated at each reporting date  Stage 2: credit risk has increased significantly since initial recognition – entities recognize lifetime expected losses and interest is presented on a gross basis  Stage 3: the financial asset is credit impaired – entities recognize lifetime expected losses but present interest on a net basis (based on the gross carrying amount less credit allowance)
  38. 38. Stage 1 2 3 Recognition of impairment 12 month expected credit losses Lifetime expected credit loss Recognition of interest Effective interest on the gross carrying amount (before deducting expected losses) Effective interest on the net (carrying) amount
  39. 39. General Approach Simplified Approach Short-term trade receivables  Long-term trade receivables Policy election at entity level Other debt financial assets measured at AC  or FVOCI Loan commitments and financial guarantee contracts not accounted for at FVPL  Lease receivables Policy election at entity level Contract assets (do not contain a significant  financing component) Contract assets (contain a significant financing component) Policy election at entity level

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