Final phase of new IFRS 9 now complete

By: Jason Goh

The new International Financial Reporting Standard 9 (IFRS 9) is built on a logical, single classification and measurement approach. It’s meant for financial assets that reflect the business model in which they are managed and their cash flow characteristics. Built upon this is a forward-looking expected credit loss model that provides more timely recognition of losses. This single model is applicable to all financial instruments subject to impairment accounting.

In addition, IFRS 9 addresses the ‘own credit’ issue. Own credit is when financial institutions book gains through profit or loss as a result of the value of their own debt falling due to a decrease in credit worthiness when they have elected to measure that debt at fair value. IFRS 9 also includes an improved hedge accounting model to better link the economics of risk management with its accounting treatment.

IFRS 9 is effective for annual periods beginning on or after 1 January, 2018. However, the standard is available for early application. In addition, the own credit changes can be applied early in isolation without otherwise changing the accounting for financial instruments.

Phase 1 - Classification and Measurement

IFRS 9 introduces a single classification and measurement model dependent on:

  • The entity’s business model objective for managing financial assets, and
  • The contractual cash flow characteristics of financial assets

Type of classification:

  • Amortized cost
  • Fair value through other comprehensive income (FVOCI)
  • Fair value through profit and loss

Phase 2 - Impairment

IFRS 9 creates a forward-looking impairment model to recognize expected losses based on 3 stages:


Phase 3 – Hedge Accounting

Incorporated major overhaul of hedge accounting and introduce significant improvements, principally by aligning the accounting more closely with risk management.  As a
principle-based approach, IFRS 9 looks at whether a risk component can be identified and measured.

IFRS 9 overhauls hedge accounting and introduces significant improvements by aligning the accounting more closely with risk management. As a principle-based approach, IFRS 9 looks at whether a risk component can be identified and measured.
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