IFRS 9 Financial Instruments

International Financial Reporting Standard 9

Overview of IFRS 9

  • Issued: in 2009; followed by amendments
  • Effective date: 1 January 2018
  • It replaced IAS 39 Financial Instruments: Recognition and Measurement.
  • What it does:
    • It prescribes the rules for recognition, measurement (including impairment), derecognition of financial instruments and hedge accounting.
    • It classifies financial assets into 2 categories:
      1. Financial assets measured at amortized cost;
      2. Financial assets measured at fair value. This category has 2 subcategories:
        1. Financial assets measured at fair value through profit or loss;
        2. Financial assets measured at fair value through other comprehensive income.
    • The classification of financial assets is performed based on two tests:
      1. Business model test; and
      2. Contractual cash flow characteristics test.
    • IFRS 9 classifies financial liabilities into 2 categories:
    • Financial liabilities at amortized cost; and
    • Financial liabilities at fair value through profit or loss; with 2 subcategories:
      1. Held for trading;
      2. Designated at FVTPL upon initial recognition.
    • IFRS 9 describes requirements for subsequent measurement and accounting treatment for each category of financial instruments.
    • It presents the rules for derecognition of financial instruments, with focus on financial assets. It contains the derecognition decision tree to assist in assessment of derecognition criteria.
    • It contains the requirements related to impairment of financial assets. It describes the expected credit loss and both general and simplified approach to implementation of expected credit loss model.
    • It deals with identification and accounting for embedded derivatives.
    • It contains the guidance on hedge accounting. It specifies the accounting treatment for 3 types of hedge relationships:
      1. Cash flow hedge;
      2. Fair value hedge;
      3. Hedge of a net investment in a foreign operation.
    • It contains appendices with definitions and application guidance.

Articles about IFRS 9

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