IFRS 9 Financial Instruments

IFRS UPDATES:
EFFECTIVE JANUARY 1, 2018

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New Standards
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1. IFRS 9 Financial Instruments
IFRS 9 Financial Instruments sets out the requirements for recognising and measuring financial
assets, financial liabilities and some contracts to buy or sell non-financial items.
The Board had always intended that IFRS 9 would replace IAS 39 in its entirety. However, in
response to requests from interested parties that the accounting for financial instruments should be
improved quickly, the Board divided its project to replace IAS 39 into three main phases. As the
Board completed each phase, it issued chapters in IFRS 9 that replaced the corresponding
requirements in IAS 39.
In July 2014 that work culminated when the Board issued the completed version of IFRS 9, which
includes:
(a) a model for classifying financial assets that is driven by an asset’s cash flow characteristics and
the business model in which it is held;
(b) a model for classifying financial liabilities, including recognition in other comprehensive income,
rather than in profit or loss, of gains (and losses) that are due to the deterioration (or improvement)
in an entity’s own credit risk on financial liabilities that an entity has elected to measure at fair value;
(c) a single, forward-looking ‘expected loss’ impairment model for financial assets not measured at
fair value through profit or loss that requires entities to account for expected credit losses from when
the financial assets are first recognised, and to recognise full lifetime expected losses when credit
risk has increased significantly since initial recognition. (The new impairment model applies equally
to off-balance sheet exposures such as loan commitments and financial guarantee contracts.); and
(d) a hedge accounting model that more closely aligns the accounting treatment with the entity’s risk
management activities and (in IFRS 7 Financial Instruments: Disclosures)
provides enhanced disclosures about risk management activity.
It should be noted that:
(a) the requirements in IFRS 9 for own credit risk can be early applied without any
other part of IFRS 9 being applied; and
(b) an entity that applies IFRS 9 can nevertheless elect (an accounting policy choice) to
continue applying the hedge accounting requirements in IAS 39 for all hedge
accounting relationships.
2. IFRS 15 Revenue from Contracts with Customers
IFRS 15 Revenue from Contracts with Customers establishes a comprehensive framework for
determining when to recognise revenue and how much revenue to recognise.
The core principle in that framework is that an entity should recognise revenue to depict the transfer
of promised goods or services to the customer in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or services.
To recognise revenue under the Standard, an entity applies the following five steps: identify the
contract(s) with a customer; identify the performance obligations in the contract; determine the
transaction price; allocate the transaction price to the performance obligations in the contract; and
recognise revenue when (or as) the entity satisfies a
performance obligation.
In September 2015, the Board changed the effective date of the Standard from 1 January
2017 to 1 January 2018.
In April 2016, the Board amended IFRS 15 by issuing Clarifications to IFRS 15 Revenue from
Contracts with Customers. The objective of these targeted amendments was to clarify the Board’s
intentions when developing some of the requirements in IFRS 15.
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Amendments to Standards
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1. Classification and Measurement of Share-based Payment
Transactions (Amendments to IFRS 2)
It contains requirements on the accounting for:
(a) the effects of vesting and non-vesting conditions on the measurement of cash-settled share-
based payments;
(b) share-based payment transactions with a net settlement feature for withholding tax obligations;
and
(c) a modification to the terms and conditions of a share-based payment that changes the
classification of the transaction from cash-settled to equity-settled.
2. Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (Amendments to
IFRS 4)
It addresses concerns arising from the different effective dates of IFRS 9 and IFRS 17 Insurance
Contracts.
The effective date of IFRS 17 is 1 January 2021.
The amendments introduce two optional approaches:
(a) a temporary exemption—entities whose activities are predominantly connected with insurance
may choose to continue to apply IAS 39 instead of IFRS 9. This optional
temporary exemption from IFRS 9 is available until 2021.
(b) an overlay approach—all entities that issue insurance contracts and apply IFRS 9 may choose to
reclassify in other comprehensive income, the difference in the amounts recognised in profit or loss
for eligible financial assets between applying IFRS 9 and applying IAS 39.
3. Transfers of Investment Property (Amendments to IAS 40)
It clarifies when there is a transfer to, or
from, investment property.
4. Annual Improvements to IFRS Standards 2014–2016 Cycle
Deletion of short-term exemptions for first-time adopters deletes some short-term exemptions and
the related effective-date paragraphs from IFRS 1 First-time Adoption of International Financial
Reporting Standards because these exemptions are no longer applicable.
Measuring an associate or joint venture at fair value clarifies that entities that elect to measure
investments in joint ventures and associates at fair value through profit or loss may make this
election separately for each associate or joint venture.
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New IFRIC Interpretations
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1. IFRIC 22 Foreign Currency Transactions and Advance
Consideration
It addresses how to determine the date of the transaction for the purpose of determining the
exchange rate to use on
initial recognition of an asset, expense or income (or part of it) when derecognising a non-monetary
asset or non-monetary liability arising from the payment or receipt of
advance consideration in a foreign currency.

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IFRS UPDATES:

EFFECTIVE JANUARY 1, 2018

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