The IPSASB has created two webinars covering the topic of financial instruments.
Part A covers the classification and measurement of financial instruments, including an overview of IPSAS-Financial Instruments and key changes introduced by IFRS 9.
PFRF for Coops webinar 2020 CDA Regional Office Ijo bitonio
e-Forum of CDA and PICPA Pangasinan Chapter
Aug 19, 2020
on CDA Issuances, Statutory Reserves, MC 2020-18, Journal Entries and Philippine Financial Reporting System
PFRF for Coops webinar 2020 CDA Regional Office Ijo bitonio
e-Forum of CDA and PICPA Pangasinan Chapter
Aug 19, 2020
on CDA Issuances, Statutory Reserves, MC 2020-18, Journal Entries and Philippine Financial Reporting System
Financial accounting icab chapter 9 provisions, contingencies and events after the balance sheet date
Financial accounting icab chapter 9 provisions, contingencies and events after the balance sheet date
Financial accounting, icab ,chapter 9 ,provisions, contingencies ,and events after the balance sheet date
Philip Lewis, Head of Accounting Product at Aptitude Software, presents his thoughts on the complexities and challenges involved in the implementation of IFRS 9 regulation for banks globally.
Financial accounting icab chapter 9 provisions, contingencies and events after the balance sheet date
Financial accounting icab chapter 9 provisions, contingencies and events after the balance sheet date
Financial accounting, icab ,chapter 9 ,provisions, contingencies ,and events after the balance sheet date
Philip Lewis, Head of Accounting Product at Aptitude Software, presents his thoughts on the complexities and challenges involved in the implementation of IFRS 9 regulation for banks globally.
In the backdrop of the buzz that IFRS-9 has generated in the banking industry, Aptivaa is pleased to launch a series of articles providing our perspective on various issues highlighted by our esteemed clients during interactions in the recent months. First in the series is our take on the latest BCBS paper which requires ‘high quality’, ‘robust’ & ‘consistent’ implementation of Expected Credit Loss (ECL) framework for all internationally active banks.
Key highlights from BCBS guidance are:
§ Banks should consider the principle of proportionality and materiality while finalizing the methodology for ECL estimation
§ BCBS allows the immediate reversal of allowance in case of credit quality improvement, recognising that ECL accounting frameworks are symmetrical
§ Limited use of IFRS 9 practical expedients such as, more than 30 days past due, low credit risk exemption & information set
§ Inclusion of forward looking information and macroeconomic forecasts to the historical information in the ECL estimation process
§ Requirement of robust policies and procedures for model governance and validation which is in line with regulatory requirements for Basel II IRB purposes
Please find enclosed the white paper, which provides in-depth details of the key aspects discussed by the Basel Committee and our view on the same.
IFRS (International Financial Reporting Standards) 9 is not just an accounting standard, but a game-changer. In today’s capital constrained environment, the increased volatility of P&L and that of associated regulatory capital are likely to have a profound impact across the stakeholder community. This presentation provides an overview of our assistance themes. If you are project sponsor or a stakeholder, please feel free to organize a call with us to discuss how Nexx can assist you.
Credit Impairment under IFRS 9 for BanksFaraz Zuberi
A quick overview of credit impairment under IFRS 9 for banks. Those with limited or no understanding of new requirements for loan loss accounting, will get a quick high level understanding of an accounting standard that is the most significant change in accounting for loan losses in more than a decade.
Banks are scrambling to meet with IFRS 9 guidelines and are setting down on the path to implement various ECL estimation methodologies and models. But a topic that hasn’t been given enough attention is the need for governance of these models and the attendant model risk management framework that needs to be set up to lend credibility to the model estimates. This blog touches upon the need for validation of models and how model risk governance has become paramount in view of the new guidelines.
Offering insights into Accounting Standards Updates (ASUs), the new ASUs are explained with particular emphasis on standards that became effective for the 2017 calendar year, will take effect in 2018, or have been issued in 2017 and 2018, but are not effective until 2019 or thereafter.
Conversion Ind AS (the converged IFRS standards) in India Dr Biswadev Dash
02/01/2015 when the Press Information Bureau, Government of India, Ministry of Corporate Affairs (MCA) issued a note outlining the various phases in which Indian Accounting Standards converged with IFRS (Ind AS) is proposed to be implemented in India it was a landmark reforms in accounting & reporting sector. With this the Companies other than Banking Companies, Insurance Companies and NBFCs will be covered. Indian Accounting standard is highly precise. Thus Conversion Ind AS (the converged IFRS standards) in India may significantly affect a company’s day-to-day operations and may even impact the reported profitability of the business itself. Of course Conversion brings a one-time opportunity to comprehensively streamline the financial reporting.
Impacts of IFRS Adoption on Financial Statements: Issues & Challenges - Chartered Institute of Bankers of Nigeria (CIBN) workshop on IFRS Abuja - 28 - 29th July , 2016
Bentleys is proud to offer you the slides from our Financial Reporting Bootcamp 2015, for all financial statement preparers, designed specifically to address the current hot issues & new developments facing our profession.
The Bootcamp will provide you with practical solutions, tools and skills that will make the preparation of your financial statements easier.
If you are a Finance Director, Chief Financial Officer or a Financial Controller then this slide page will be for you.
What You will Learn
Insight into the changes in financial reporting requirements
Highlighting current hot topics
Providing you with practical application of these changes
Showing you how to address these issues holistically in the “real-world” context
Learn through practical workshop sessions
Discuss the issues in the context of relevant case studies
Keep up to date & improve your reporting skills
The IPSASB has created a two-part webinar on financial instruments. It was prepared and presented by Lucy Qi, the technical staff member responsible for the IPSASB’s Financial Instruments Update project.
Part B covers hedge accounting.
Similar to Financial Instruments Education Session Part A (20)
5 Tips for Creating Standard Financial ReportsEasyReports
Well-crafted financial reports serve as vital tools for decision-making and transparency within an organization. By following the undermentioned tips, you can create standardized financial reports that effectively communicate your company's financial health and performance to stakeholders.
Turin Startup Ecosystem 2024 - Ricerca sulle Startup e il Sistema dell'Innov...Quotidiano Piemontese
Turin Startup Ecosystem 2024
Una ricerca de il Club degli Investitori, in collaborazione con ToTeM Torino Tech Map e con il supporto della ESCP Business School e di Growth Capital
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Seminar: Gender Board Diversity through Ownership NetworksGRAPE
Seminar on gender diversity spillovers through ownership networks at FAME|GRAPE. Presenting novel research. Studies in economics and management using econometrics methods.
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1. Page 1 | Proprietary and Copyrighted Information
Financial Instruments:
Update of IPSAS 28-30
Financial Instruments Education Session – Part A
Lucy Qi
Manager, Standards Development and Technical Projects
IPSASB
2. Page 2 | Proprietary and Copyrighted Information
Financial Instruments: Update of IPSAS 28-30
• Overview IPSASs- Financial Instruments
• Key Changes Introduced by IFRS 9
– Classification and Measurement
– Impairment: Expected Loss Model
Manager, Standards Development
and Technical Projects
International Public Sector
Accounting Standards Board
Email: lucyqi@ipsasb.org
Direct: 1 (647) 826-3179
Learn more at: ipsasb.org
Presented by:
Lucy Qi
Session Outline
3. Page 3 | Proprietary and Copyrighted Information
Financial Instruments: Update of IPSAS 28-30
Overview of Current IPSASs on Financial Instruments
IPSAS IFRS Convergence
Financial Instruments:
Presentation
IPSAS 28 IAS 32
(Including amendments
up to December 2008)
Primarily converged
Additional application guidance
on contractual arrangements and
non-exchange transactions
Financial Instruments:
Recognition and
Measurement
IPSAS 29 IAS 39
(Including amendments
up to April 2009)
Primarily converged
Additional guidance on
concessionary loans and financial
guarantees
Financial Instruments:
Disclosures
IPSAS 30 IFRS 7
(Including amendments
up to April 2009)
Primarily converged
Additional requirements for
concessionary loans
IFRS 9
Updates
Updates
4. Page 4 | Proprietary and Copyrighted Information
Financial Instruments: Update of IPSAS 28-30
Overview of IFRS 9: Financial Instruments
Phase I
Classification &
Measurement
Phase II
Impairment
Phase III
Hedge Accounting
• Financial assets –
significant changes
• Financial liabilities – own
credit risk
• Expected loss model –
dual measurement
approach
• Principles-based
approach to align with risk
management
• Flexibility in hedging
instruments & hedged
items
Effective January 1, 2018, early adoption permitted.
5. Page 5 | Proprietary and Copyrighted Information
Financial Instruments: Update of IPSAS 28-30
IFRS 9: Financial Instruments
Phase I: Classification &
Measurement
6. Page 6 | Proprietary and Copyrighted Information
• New classification model for financial assets
Business model
Contractual cash flow characteristics
IFRS 9: Classification & Measurement –
Key Changes
Financial Instruments: Update of IPSAS 28-30
• Classification of financial liabilities
IAS 39 with minor changes
Gains/losses from changes in own credit risk - OCI
Overall: Conceptual approach, principles – based, and reflects asset management
Overall: Key change is to addresses the “own credit” issue
7. Page 7 | Proprietary and Copyrighted Information
IFRS 9: Classification & Measurement –
Financial Assets
Financial Instruments: Update of IPSAS 28-30
IPSAS 29 (IAS 39)
Fair Value Through Surplus &
Deficit (FVTSD)
• Held for trading
• FV option election
Available for Sale (AFS)
Held to Maturity (HTM)
Loans and Receivables
IFRS 9
Fair Value Through Profit and
Loss (FVTPL)
• Held for trading
• FVTPL designation
FVOCI (Debt)
FVOCI (Equity)
Amortized Cost
8. Page 8 | Proprietary and Copyrighted Information
IFRS 9: Classification & Measurement –
Debt Instruments Matrix
Financial Instruments: Update of IPSAS 28-30
SPPI Test
Business Model
Assessment
Comments
Amortized Cost
Pass SPPI
& hold and collect
FVOCI (Debt)
Pass SPPI
& hold to collect and sell
FVTPL Residual category
“Solely payment of principle
and interest” i.e. plain vanilla?
Why are you holding the asset
and how do you manage it?
Hold to Collect
Hold to Collect and Sell
FVTPL or other
9. Page 9 | Proprietary and Copyrighted Information
IFRS 9: Classification & Measurement –
Business Model Assessment
Business Model Classification*
(if Cash flow Characteristic Test also
Passed)
Hold to collect business model Amortized Cost
Hold to collect and sell business model FVOCI (with recycling)
FVTPL business model FVTPL
Financial Instruments: Update of IPSAS 28-30
* Fair value option election available at initial recognition
• Level at which to perform the test
• Matter of fact rather than assertion
10. Page 10 | Proprietary and Copyrighted Information
• Solely Payments of Principle and Interest
Basic lending arrangement (i.e. “plain vanilla”)
• Primarily compensates for
Time value of money
Credit risk of counterparty
IFRS 9: Classification & Measurement –
Contractual Cash Flow Characteristics Test (SPPI)
Financial Instruments: Update of IPSAS 28-30
11. Page 11 | Proprietary and Copyrighted Information
IFRS 9: Classification & Measurement –
Debt Instrument Illustrative Examples
Financial Instruments: Update of IPSAS 28-30
Example – Part A:
Government A purchases a 5 year corporate bond with a fixed interest rate of 3%.
The bond was purchased as part of the funds set aside to finance the
construction of a new highway in 5 years. It intends to hold the instrument to
maturity and collect on the cash flows.
The instrument was previously held as part of the held to maturity portfolio under
IPSAS 29.
Business Model:
SPPI Test:
Hold to Collect
IFRS 9 Classification: Amortized Cost
12. Page 12 | Proprietary and Copyrighted Information
IFRS 9: Classification & Measurement –
Debt Instrument Illustrative Examples
Financial Instruments: Update of IPSAS 28-30
Example – Part B:
Government B purchases a 5 year corporate bond, interest rate variable based
on market rates as part of a social security fund. The entity intends to hold the
instrument to maturity and collect on the cash flows, but may sell as part of
periodic rebalancing of the portfolio to better match the estimated timing and
amount of future social security payments.
The instrument was previously classified as AFS under IPSAS 29.
Business Model:
SPPI Test:
Hold to Collect and Sell
IFRS 9 Classification: FVOCI (Debt)
13. Page 13 | Proprietary and Copyrighted Information
IFRS 9: Classification & Measurement –
Debt Instrument Illustrative Examples
Financial Instruments: Update of IPSAS 28-30
Example – Part C:
Government C purchases a 5 year corporate bond, interest rate variable based on
market rates (same instrument from Part B).
Business Model:
SPPI Test:
IFRS 9 Classification: FVTPL
Converts into a fixed number of equity instruments of the issuer.
14. Page 14 | Proprietary and Copyrighted Information
IFRS 9: Classification & Measurement –
Roadmap for Financial Assets
Financial Instruments: Update of IPSAS 28-30
FVOCI
(Equity – no recycling)
Held for trading?
FVOCI Option
Elected?
Contractual cash flow characteristics test (SPPI test)
Ds
FVTPL
Business Model Assessment
Fail
No
Yes
No
Yes
Fail
Fail Pass
FVOCI
(Debt- with recycling)
Amortized Cost
Hold to collect
(no FVO elected)
Hold to collect
& sell
(no FVO elected)
All other cases
Equity Derivatives
Debt
(including hybrids)
15. Page 15 | Proprietary and Copyrighted Information
IFRS 9: Classification & Measurement –
Equity Instrument Illustrative Examples
Financial Instruments: Update of IPSAS 28-30
Example:
Government D controls through equity ownership, the local liquor distributor, for the purpose
of regulating the liquor market. It does not intend to sell its investment in the foreseeable
future. Government D produces separate financial statements.
Is it held for trading?
FVOCI election?
1. What options does Government D have in accounting for this investment?
2. Should Government D choose to account for its equity investment as a financial instrument,
what options are available?
If yes, FVOCI (equity); If no, FVTPL
Equity method, cost, or FI
16. Page 16 | Proprietary and Copyrighted Information
• Designation as FVTPL
Eliminates accounting inconsistency; or
Part of a group of assets/ liabilities managed on a fair value basis
• Designation of non-derivative equity instruments as FVOCI
Irrevocable election at initial recognition
Subsequent fair value changes through OCI - never recycled to the P&L
IFRS 9: Classification & Measurement –
Designations and Elections
Financial Instruments: Update of IPSAS 28-30
17. Page 17 | Proprietary and Copyrighted Information
Financial Instruments: Update of IPSAS 28-30
IFRS 9: Financial Instruments
Phase II: Impairment
18. Page 18 | Proprietary and Copyrighted Information
• Loss recognition based on objective evidence
• Assets held at Cost/ Amortized cost:
Impairment = carrying amount – PV of estimated future cash flows
Recognized in surplus/deficit
Reversals allowed
• AFS:
Impairment = cumulative loss recognized in net assets/equity
Reclass of loss from net assets/equity to surplus/deficit
Reversible for debt and non reversible for equity
Impairment under IPSAS 29 – Incurred Loss Model
Financial Instruments: Update of IPSAS 28-30
19. Page 19 | Proprietary and Copyrighted Information
• Criticism of the incurred loss model during financial crisis
• Forward looking expected loss model
Initial proposal – the credit adjusted Effective Interest Rate (EIR)
Decoupling of Expected Credit Losses (ECL) from EIR
• The dual measurement approach
Two-step model in 2013 ED – the Stepped Profile
IFRS 9: Impairment – Brief History and Background
Financial Instruments: Update of IPSAS 28-30
20. Page 20 | Proprietary and Copyrighted Information
IFRS 9: Impairment – the Stepped Profile
Financial Instruments: Update of IPSAS 28-30
Deterioration in credit quality
from initial recognition
Loss Allowance
Economic ECL (2009 ED)
Incurred Loss
Significant
deterioration
12 months expected
credit losses
IFRS 9 impairment
Lifetime
expected
losses
Source: Based on illustration provided by
IASB in March 2013 snapshot: Financial
Instruments: Expected Credit Losses, page 9
Incurred loss model (IAS 39)
21. Page 21 | Proprietary and Copyrighted Information
• IFRS 9 – 2 step expected credit loss model
Eliminates the incurred loss threshold for recognition of credit losses
ECL at inception and update for subsequent changes in credit risk
• Applies to debt instruments recorded at amortized cost or at FVOCI
• Expanded scope to include guarantees and loan commitments
IFRS 9: Impairment – ECL Model
Financial Instruments: Update of IPSAS 28-30
Overall, the ECL is designed to:
• Ensure more timely recognition of ECLs than the existing incurred loss model
• Distinguish: instruments with significantly deteriorated credit quality and those without
• Better approximate the economic ECLs
22. Page 22 | Proprietary and Copyrighted Information
IFRS 9: ECL Model – General Approach
Financial Instruments: Update of IPSAS 28-30
Underperforming
(Significant
increase in credit
risk since initial
recognition)
Performing
(Initial recognition)
Non - Performing
(Credit Impaired
Assets)
Stage 1
12- month expected credit losses Lifetime expected credit losses
Stage 2 Stage 3
Effective interest on
gross carrying amount
Interest
Revenue
Loss
Allowance
Effective interest on
gross carrying amount
Effective interest on amortized
cost carrying amount (gross
cost less credit allowance)
Change in credit risk since initial recognitionImprovement Deterioration
23. Page 23 | Proprietary and Copyrighted Information
IFRS 9: ECL Model – A Closer Look at Measurement
Financial Instruments: Update of IPSAS 28-30
• What is ECL – Probability weighted estimate of credit losses
• Measurement – Lifetime vs 12 months
• Period over which to estimate ECL – Expected vs Contractual
• Information to consider – Reasonable and Supportable
• Modifications & Collateral
24. Page 24 | Proprietary and Copyrighted Information
IFRS 9: ECL Model – Measurement Example
Financial Instruments: Update of IPSAS 28-30
Company X originates a 10-year loan for $1,000,000. Interest paid annually. Loan’s coupon
and EIR are 5%.
Scenario A: No significant increase in credit risk since inception. Company X estimates:
• The loan has a 12 months probability of default (PD) of 0.5%; and
• The estimate of impact of loss given default (LGD) is 25%, and would occur in 12 months
time if the loan were to default
Under IFRS 9: 12 Month ECL at inception
Estimated cash flows receivable x PD x LGD, discounted at original EIR
= (1,000,000 + 50,000) x 0.5% x 25% /1.05
= $1,250 Continue to adjust and monitor for significant increase in credit risk
Under IPSAS 29: No loss at inception. Impairment only recognized if and when loss event
occurs e.g. $250,000 (25% x 1,000,000) in 12 months time if estimates are accurate
25. Page 25 | Proprietary and Copyrighted Information
IFRS 9: ECL Model – Measurement Example
Financial Instruments: Update of IPSAS 28-30
Company X originates a 10-year loan for $1,000,000. Interest paid annually. Loan’s coupon
and EIR are 5%.
Scenario B: Significant increase in credit risk since inception. Company X estimates:
• Loan has lifetime PD of 20%; and
• The LGD is 25% and would occur on average in 24 months time if the loan were to default
Under IFRS 9: Lifetime ECL
Estimated cash flows receivable x PD x LGD, discounted at original EIR
= (1,000,000 + 50,000) x 20% x 25% /1.052
= $47,619 as soon as significant increase in credit occurs. Continue to adjust based on
updated facts & circumstances.
Under IPSAS 29: No loss at inception. Impairment only recognized if and when loss event
occurs e.g. $250,000 (25% x 1,000,000) after 24 months when incurred
26. Page 26 | Proprietary and Copyrighted Information
• Significant Increase in Credit Risk
Definition of default
Relative maturities
Individual vs. collective
Internal and external indicators
Qualitative vs. quantitative
IFRS 9: ECL Model –
Implementing the General Approach
Financial Instruments: Update of IPSAS 28-30
27. Page 27 | Proprietary and Copyrighted Information
• Lifetime ECL at each reporting date from inception
• Required: Trade receivables without a significant financing component
• Optional: Trade receivables that contain a significant financing
component; and all lease receivables
IFRS 9: ECL Model – Simplified Approach
Financial Instruments: Update of IPSAS 28-30
Overall: Intended to alleviate practical concerns of tracking changes in
credit risk for entities with less sophisticated risk management systems
28. Page 28 | Proprietary and Copyrighted Information
• Credit impaired on purchase or origination, if evidence of impairment
• Credit adjusted EIR based on full lifetime ECL on initial recognition
• Subsequent changes in lifetime ECL (positive & negative) recognized in
profit or loss
IFRS 9: ECL Model – Purchased or Originated
Credit- Impaired Financial Assets
Financial Instruments: Update of IPSAS 28-30
Overall: Need to consider interaction with existing guidance on
concessionary loans
29. Page 29 | Proprietary and Copyrighted Information
• Financial assets with low credit risk (optional)
• More than 30 days past due rebuttable presumption
• Change in 12-month risk of a default as approximation for change in
lifetime risk
IFRS 9: ECL Model – Operational Simplifications
Financial Instruments: Update of IPSAS 28-30
30. Page 30 | Proprietary and Copyrighted Information
Questions?
Financial Instruments: Update of IPSAS 28-30
Lucy Qi
Manager, Standards Development and Technical Projects
International Public Sector Accounting Standards Board
Email: lucyqi@ipsasb.org
Direct: 1 (647) 826-3179
Learn more at: ipsasb.org