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    Assignment I/: Course With Code: 22Bc3503

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    incharakoduri

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    Assignment I/: Course With Code: 22Bc3503

    Uploaded by

    incharakoduri
    6 views11 pages

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    56d1a65f-d925-4ecf-997a-f4d3998d528e (1) (2)

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    6 views11 pages

    Assignment I/: Course With Code: 22Bc3503

    Uploaded by

    incharakoduri

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    ASSIGNMENT

    I/I

    COURSE WITH CODE: 22BC3503

    ASSIGNMENT TOPIC: IFRS 9 FINANCIAL INSTRUMENT

    SUBMITED BY:
    STUDENT NAME: Sharath
    kumar USN: CMS22BC0050
    CLASS: BCOM ACCA 5TH SEM

    SUBMITED TO:
    FACULTY NAME: MS. KAUVYA
    1
    RAVICHANDARAN DESIGNATION: ASSISTANT
    PROFESSOR

    2
    IFRS 9 is an accounting standard developed by the International Financial
    Reporting Standards (IFRS) aimed at improving the recognition and
    measurement of financial instruments. Its goal is to enhance clarity and
    consistency in financial reporting by focusing on three key areas:
    classification and measurement, impairment, and hedge accounting.

    1. Classification and Measurement: Companies are required to


    categorize their financial assets based on their nature and cash flow
    characteristics, considering both fair market value and book cost.

    2. Impairment: This section introduces a forward-looking


    approach, requiring companies to estimate expected future
    losses to better assess the risks associated with their financial
    assets.

    3. Hedge Accounting: This aspect aligns accounting practices with risk


    management strategies, allowing companies to effectively match
    the accounting treatment of hedging instruments with the associated
    risks.

    Overall, IFRS 9 aims to enhance the reliability of financial reporting,


    making it easier for investors and stakeholders to understand a company's
    financial health.

    International Financial Reporting Standard 9 (IFRS 9) provides a framework


    3
    for companies to report their financial instruments, including debts,
    investments, and

    4
    transactions. Building on the previous standard (IAS 39), IFRS 9 aims to
    enhance the clarity and reliability of financial reporting across dif erent
    organizations and countries.

    Key Components:

    Classification and Measurement: Companies classify their financial assets


    based on their management approach and the type of income those assets
    generate. This helps present a more accurate picture of their financial
    health.

    Hedge Accounting: IFRS 9 introduces a revised approach to hedge


    accounting, which is relevant for businesses that use financial instruments
    to manage risks, such as fluctuations in interest rates or foreign exchange
    rates. This alignment a lows companies to recognize the effects of hedging
    activities in the same period as the associated risks, creating a clearer
    picture of financial performance.

    Improved Transparency: The standard aims to bring consistency and


    transparency to financial statements, making it easier for investors and
    stakeholders to understand a company’s financial position. This is
    increasingly important in a global market where investors assess
    companies from various countries and rely on accurate financial
    information.

    By emphasizing classification, measurement, market risk, and hedge


    accounting, IFRS 9 provides a clearer and more balanced view of financial
    reporting, benefiting both companies and their stakeholders.

    International Financial Reporting Standard 9 (IFRS 9) aims to create


    consistency in financial reporting across organizations. It focuses on the
    classification and measurement of financial assets, which fall into three
    main categories:

    5
    1.Amortized Cost: Assets measured at their original value and adjusted
    for repayments over time. For instance, a bank would classify a loan as a
    financial asset at amortized cost, recording its initial value and adjusting
    it based on repayments and interest over the loan’s term.

    6
    2. Fair Value Through Other Comprehensive Income (FVOCI): Assets that
    are measured at market value, with changes in value recorded in other
    comprehensive income. For example, if a company invests in shares of
    another company, it might categorize these shares as FVOCI, reflecting
    any fluctuations in market value in its comprehensive income rather
    than directly impacting profit or loss.

    3. Fair Value Through Profit or Loss (FVTPL): Assets measured at market


    value, with changes in value recognized in profit or loss. For example, if a
    company holds shares of another firm and classifies them as FVTPL, any
    changes in the market price would directly affect the company’s profit
    or loss.

    Additiona ly, IFRS 9 introduces the concept of expected credit losses (ECL).
    Companies are required to estimate potential future losses on their
    financial assets. For instance, if a company has a portfolio of receivables
    and estimates that 5% may not be collected, it would recognize a provision
    for that expected loss, impacting its financial statements accordingly.

    Finally, IFRS 9 also addresses hedge accounting, which allows companies


    to manage risks associated with fluctuations in interest rates or currency
    values. By aligning the accounting treatment of hedging activities with the
    underlying risks, IFRS 9 enables companies to accurately reflect the
    economic impact of their risk management strategies.

    International Financial Reporting Standard 9 (IFRS 9) significantly alters


    how companies report their financial assets and liabilities, aiming for
    consistency in financial reporting. However, it also presents several
    challenges:

    1.Classification and Measurement Complexity: The standard requires


    companies to determine whether financial assets should be classified at
    amortized cost, fair value through other comprehensive income (FVOCI),
    or fair value through profit or loss (FVTPL). This decision-making process
    7
    can lead to increased operational costs and necessitate significant
    changes to existing accounting systems.

    8
    2. Expected Credit Loss (ECL) Model: IFRS 9 introduces the requirement
    for companies to estimate potential future losses based on expected
    events. This can require substantial resources and may necessitate
    hiring additional expertise or investing in new technology to accurately
    assess credit risk.

    3. Data Collection and Analysis: Companies must gather and analyze large
    amounts of data to comply with the new standards, which can be
    resource-intensive. Ensuring the accuracy and consistency of this data
    across dif erent regions can also pose challenges, potentially leading to
    discrepancies in financial reporting.

    4. Impact on Financial Ratios: The changes in how financial instruments


    are valued and reported can affect key financial ratios and performance
    indicators, such as earnings before interest and taxes (EBIT) and return
    on equity (ROE). This can create uncertainty for stakeholders regarding
    the company’s financial health.

    5. Regulatory Compliance and Continuous Monitoring: The ongoing need


    to comply with IFRS 9 and keep up with evolving regulations can create
    uncertainty for businesses, hindering proactive long-term planning
    and investment decisions.

    Overall, while IFRS 9 aims to enhance transparency and reliability in financial


    reporting, its implementation can pose significant challenges for
    companies.

    International Financial Reporting Standard 9 (IFRS 9) has


    significantly transformed how companies manage and report
    their financial instruments. Introduced in response to the 2008
    financial crisis, it aims to enhance clarity and consistency in
    financial reporting. IFRS 9 enables companies to clas ify and
    measure financial as ets and liabilities based on their
    operational strategy and cash flow characteristics, a lowing for
    a more tailored approach to accounting that reflects their
    9
    activities and risks. This is particularly beneficial for investors
    and stakeholders seeking a clear understanding of a
    company’s financial health.

    10
    A key feature of IFRS 9 is the expected credit los (ECL) model,
    which requires companies to anticipate potential los es on
    financial as ets in advance. This proactive approach helps
    organizations prepare for economic downturns and better
    manage credit risk.

    However, implementing IFRS 9 poses challenges, particularly in


    accurately estimating future credit los es, which can be
    influenced by various economic factors. Despite these hurdles,
    IFRS 9 represents a significant advancement in financial
    reporting, aiming to improve the quality and reliability of
    financial statements. As companies adapt to these new
    standards, they are likely to achieve greater transparency and
    a more comprehensive understanding of risks, ultimately
    leading to a more robust financial outlook.

    11

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