IFRS 9 – Reclassification of financial instruments

The IFRS 9 requirements for reclassification of financial instruments are significantly different from those in IAS 39.

IAS 39

IFRS 9

  • IAS 39 contains numerous reclassification rules for the various categories of financial instruments.
  • For instance, a change in intention or ability causes the initial classification to be inappropriate, a reliable measure of fair value becomes available or is no longer available, etc.

(IAS 39.50-54)

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Classification and Measurement of Financial Liabilities

The IFRS 9 requirements for the classification and measurement of financial liabilities are substantially unchanged from IAS 39 except for the following:

Overall, financial liabilities are still measured at amortized cost except for:

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IFRS 9 – Financial asset classification

The table below summarizes the financial asset classification requirements under IFRS 9 and the differences with IAS 39:

Categories Conditions to be Met Impact
Amortized Cost The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows (“business model test”).

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

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Interaction between IFRS 9 and IAS 21

[From Guidance on implementing IFRS 9 Financial Instruments]

IFRS 9 includes requirements about the measurement of financial assets and financial liabilities and the recognition of gains and losses on remeasurement in profit or loss. IAS 21 includes rules about the reporting of foreign currency items and the recognition of exchange differences in profit or loss. In what order are IAS 21 and IFRS 9 applied?

Statement of financial position

Generally, the measurement of a financial asset or financial Continue reading

FX translation of foreign entities

[From Guidance on implementing IFRS 9 Financial Instruments]

IFRS 9 and IAS 21exchange differences arising on translation of foreign entities: other comprehensive income or profit or loss?

Paragraphs 32 and 48 of IAS 21 state that all exchange differences resulting from translating the financial statements of a foreign operation should be recognised in other comprehensive income until disposal of the net investment. This would include exchange differences arising from financial instruments carried at fair value, Continue reading

Separation of currency component

[From Guidance on implementing IFRS 9 Financial Instruments]

Gains and losses

IFRS 9 and IAS 21financial assets measured at fair value through other comprehensive income: separation of currency component

A financial asset measured at fair value through other comprehensive income in accordance with paragraph 4.1.2A of IFRS 9 is treated as a monetary item. Therefore, the entity recognises changes in the carrying amount relating to changes in foreign exchange rates in profit or loss in accordance Continue reading

Initial measurement: transaction costs

[From Guidance on implementing IFRS 9 Financial Instruments]

Transaction costs should be included in the initial measurement of financial assets and financial liabilities other than those at fair value through profit or loss. How should this requirement be applied in practice?

For financial assets not measured at fair value through profit or loss, transaction costs are added to the fair value at initial recognition. For financial liabilities, transaction costs are deducted from the fair value at initial Continue reading

Settlement date accounting

[From Guidance on implementing IFRS 9 Financial Instruments]

Settlement date accounting: exchange of non-cash financial assets

If an entity recognises sales of financial assets using settlement date accounting, would a change in the fair value of a financial asset to be received in exchange for the non-cash financial asset that is sold be recognised in accordance with paragraph 5.7.4 of IFRS 9?

It depends. Any change in the fair value of the financial asset to be received would Continue reading

Trade and settlement date Sale

[From Guidance on implementing IFRS 9 Financial Instruments]

Trade date vs settlement date: amounts to be recorded for a sale

How are the trade date and settlement date accounting principles in IFRS 9 applied to a sale of a financial asset?

The following example illustrates the application of the trade date and settlement date accounting principles in IFRS 9 for a sale of a financial asset. On 29 December 20X2 (trade date) an entity enters into a contractContinue reading

Trade or settlement date Financial asset

[From Guidance on implementing IFRS 9 Financial Instruments]

Regular way purchase or sale of a financial asset 

How are the trade date and settlement date accounting principles in IFRS 9 applied to a purchase of a financial asset?

The following example illustrates the application of the trade date and settlement date accounting principles in IFRS 9 for a purchase of a financial asset. On 29 December 20X1, an entity commits itself to purchase a financial asset for CU1,000, Continue reading