About

IFRS 9 is effective for annual periods beginning on or after 1 January 2018 with early application permitted.

IFRS 9 specifies how an entity should classify and measure financial assets, financial liabilities, and some contracts to buy or sell non-financial items.

IFRS 9 requires an entity to recognize a financial asset or a financial liability in its statement of financial position when it becomes party to the contractual provisions of the instrument. At initial recognition, an entity measures a financial asset or a financial liability at its fair value plus or minus, in the case of a financial asset or a financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or the financial liability.

Financial Assets

When an entity first recognises a financial asset, it classifies it based on the entity’s business model for managing the asset and the asset’s contractual cash flow characteristics, as follows:

  • Amortised cost—a financial asset is measured at amortised cost if both of the following conditions are met: 
    • the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and
    • 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.
  • Fair value through other comprehensive income—financial assets are classified and measured at fair value through other comprehensive income if they are held in a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets.
  • Fair value through profit or loss—any financial assets that are not held in one of the two business models mentioned are measured at fair value through profit or loss.

When, and only when, an entity changes its business model for managing financial assets it must reclassify all affected financial assets.

 

Scope

When applied in companies, the scope of IFRS 9 typically includes the following key aspects:

  1. Classification and Measurement of Financial Assets: Companies need to classify their financial assets into categories such as amortized cost, fair value through other comprehensive income, and fair value through profit or loss. They must then measure these financial assets based on their classification.

  2. Impairment of Financial Assets: Companies are required to assess the expected credit losses on financial assets based on various criteria, including historical data, current conditions, and future expectations. They need to recognize and account for impairment losses on these assets.

  3. Hedge Accounting: Companies engaging in hedging activities need to comply with specific hedge accounting requirements under IFRS 9. This involves identifying hedging relationships, assessing hedge effectiveness, and recognizing the impact of hedging instruments on financial statements.

  4. Disclosures: Companies must provide comprehensive disclosures relating to the accounting policies adopted, the impact of financial instruments on their financial position, performance, and cash flows, as well as any risks and uncertainties associated with financial instruments.

By incorporating these aspects of IFRS 9 into their financial reporting processes, companies can ensure compliance with international accounting standards and enhance the transparency and accuracy of their financial statements.