The document outlines the development and implementation of IFRS 9, which replaces IAS 39 and sets new requirements for the classification and measurement of financial assets and liabilities. Key changes include the introduction of a new expected credit loss model and adjustments to categorization for financial assets, such as fair value through profit or loss, amortized cost, and fair value through other comprehensive income. The document also details rules regarding reclassification, impairment recognition, and fair value options for financial instruments.

2.  Introduction
 Classification
 Recognition and Measurement
 Impairment
 Derecognition

3. 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.

4. 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.

5. 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)

6. 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.

7. 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

8.  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

9.  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).

10.  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

11.  ‘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).

12.  ‘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

13.  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).

14.  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

15.  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)

16.  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.”

17.  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)

18.  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.”

19.  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)

20.  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)

21.  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

22.  The ‘fair value option’ (FVO)
 The designation is irrevocable.
 More commonly used by financial institutions.

23. Financial liabilities
at amortized cost
Financial liabilities
at fair value
through profit or
loss (FVTPL)
Guidance on
specific financial
liabilities

24.  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

25.  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)

26.  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

27.  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)

28.  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

29.  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.

30.  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.

31.  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)

32.  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.

33.  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.

34.  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

35.  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

36.  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

37.  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).

38.  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)

39. 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

40. 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