IFRS 9: Financial Instruments
IFRS 9 “financial instruments” introduces a logical approach for classifying financial assets, liabilities, and some contracts to buy and sell non-financial items. The standard is driven by cash flow characteristics and the business model in which an asset is held and applicable to business in all industry segments in general.
Our specialists can guide you with the new “Expected Credit Loss” model for financial assets impairment, the impact of the business model on accounting and the consequences of fewer categories for assets.
Several decisions and choices must be made in the transition and continued compliance with this standard. Some good news related to IFRS 9 is that: hedge accounting rules have been eased.
Banks and financial institutions are most affected due to the introduction of this standard. However, all other corporates also need to consider the new requirements and implement them properly in their accounting and reporting systems.
Our service on IFRS 9 follows the three main aspects of the standard:
- Classification and measurement of financial assets
- Developing expected credit loss model for financial assets
- Calculation of impairment.
Classification and Measurement:
- IFRS 9 will require financial assets to be measured at amortized cost or
- Fair value through other comprehensive income (FTVOCI) or
- Fair value through profit and loss (FTVPL)
Fair value changes will be routed through profit or loss for FVTPL financial instruments or taken to OCI with no recycling for FVTOCI financial instruments. FVTOCI depends on the business model for certain assets but an irrevocable election at initial recognition for other assets. There are not many complexities involved in classification, but the entities must exercise this with utmost caution at this stage.
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