International Accounting Standard 39, Financial Instruments: Recognition and Measurement, IFRS

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International Financial Reporting Standard (IFRS) 9
Financial Instruments

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International Financial Reporting Standard (IFRS) 9

IFRS 9

      Financial Instruments
      Issued in November 2009

      IFRS 9 is the outcome of phase 1 of the IASB project to replace IAS 39
      Phase 1: Classification and measurement of financial assets

      Future phases:
      Phase 2: Measurement at amortised cost and impairment issues
      Phase 3: Hedge accounting

Financial Instruments related IFRSs

      IAS 32, Financial Instruments: Presentation
      IAS 39, Financial Instruments: Recognition and measurement
      IFRS 7, Financial Instruments: Disclosures
      IFRS 9, Financial Instruments

Structure of IFRS 9

      Recognition and derecognition
      Classification
      Measurement

      Hedge accounting: this chapter was not used in November 2009 version
      Disclosures: this chapter was not used in November 2009 version

IFRS 9 provides
      Financial reporting principles of "Financial Assets"

      IFRS 9 does not cover financial liabilities and equity instruments.

Recognition of financial assets

      IFRS 9: 3.1.1
      Financial assets are recognised when and only when
      --> the entity becomes a party to the contract

      Recognition principles of financial assets were moved to IFRS 9: 3.1.1
      Recognition principles of financial assets did not change

      IAS 39.14 (Before the amendments by IFRS 9, November 2009)
      Financial assets and financial liabilities are recognised when and only when
      --> the entity becomes a party to the contract

      IAS 39.14 (After the amendments by IFRS 9, November 2009)
      Financial liabilities are recognised when and only when
      --> the entity becomes a party to the contract

Classification of financial assets

      IFRS 9: 4.1
      Financial assets are classified as one of the following:
      (1) Financial assets subsequently measured at amortised cost
      (2) Financial assets subsequently measured at fair value

Fair value option

      IFRS 9: 4.5
      Entity has an option to designate financial assets
      --> as financial assets measured at fair value through profit or loss (FVPL)

      Such a designation can be made
      --> only at initial recognition
           and
      --> only if it eliminates accounting mismatch

Embedded derivatives

      Hybrid contracts have the following components
      (1) non-derivative host
      (2) embedded derivative

      IFRS 9: 4.7
      If the non-derivative host of a hybrid contract is a financial asset
      --> the embedded derivative is not separated from the host
      --> the entire hybrid contract is treated as one instrument

      IFRS 9: 4.8
      If the non-derivative host of a hybrid contract is not a financial asset
      --> the embedded derivative is separated from the host
      --> rules of IAS 39.11 - 39.13 are applied
      --> host and embedded derivative are treated as separate instruments

Reclassification

      IFRS 9: 4.9
      Financial assets are reclassified
      --> when and only when
      --> the business model for managing financial assets changes

Initial measurement

      IFRS 9: 5.1.1
      Financial assets are initially measured at
      --> fair value + transaction costs

      Transaction costs are not added
      --> for financial assets at fair value through profit or loss (FVPL)

Subsequent measurement

      IFRS 9: 4.2
      Financial assets are subsequently measured at amortised cost

      --> if both of the conditions (A) and (B) are satisfied
           (A) financial assets are held to collect contractual cash flows
           (B) cash flows are the payments of principal and interest

      --> Group 1 financial assets
           (used for convenience, not a designation by IFRS 9)

      IFRS 9:4.4
      Financial assets are subsequently measured at fair value
      --> if they are not measured at amortised cost
      --> Group 2 financial assets
           (used for convenience, not a designation by IFRS 9)


      IFRS 9: 5.2
      Group 1 financial assets are
      --> measured at amortised cost

      Group 2 financial assets are
      --> measured at fair value

      Group 1 financial assets are reviewed for impairment requirements
      Group 2 financial assets are not reviewed for impairment requirements

      Financial assets designated as hedged items
      --> apply hedge accounting rules

Gains and losses

      IFRS 9: 5.4
      Group 1 financial assets
      --> gains and losses are recognised in profit or loss

      Group 2 financial assets
      --> gains and losses are recognised in profit or loss

      Group 2A financial assets
      --> gains and losses are recognised in other comprehensive income (OCI)

      Financial assets designated as hedged items
      --> apply hedge accounting rules

      Group 2A financial assets satisfy all of the following conditions
      (1) investment in equity instruments
      (2) investment is not "held for trading"
      (3) entity elected to present the changes in fair value in OCI
      (4) this election is allowed only at initial recognition
      (5) this election is "irrevocable"

Summary of Financial Assets Classification

      Group 1 financial assets at amortised cost (AC)
      Group 2 financial assets at fair value through profit or loss (FVPL)
      Group 2A financial assets at fair value through other comprehensive income (FVOCI)

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