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


  • 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)

IFRS 9 – Reclassification of financial instruments

  • There is only one principle for reclassification of financial assets. Reclassification of financial assets is required only when an entity changes its business model for managing them.
  • No reclassification of financial liabilities is allowed.


IFRS 9 – Reclassification of financial instruments

IFRS 9 –

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Classification for investments in bonds

Under IFRS 9, bonds should be classified and measured based on an entity’s business model for managing the bonds and their contractual cash flow characteristics (SPPI Test) (see table below). The business model refers to how an entity manages bonds in order to generate cash flows—either by collecting contractual cash flows, selling the bonds or both. An entity is also required to determine whether the bond’s contractual cash flows are “Solely Payments of Principal and Interest” (SPPI) on the principal amount outstanding.

The entity must assess its business model by looking at several factors, including the expected frequency, volume and timing of asset sales, the measurement of financial asset performance, the management of investment risks, and whether the compensation of … Read more

Instruments with certain par prepayment features

Or debt instruments with prepayment features that give rise to compensation being paid to the party triggering the possibility to be measured at amortised cost or fair value through other comprehensive income (FVOCI) in certain circumstances. Instruments with certain par prepayment features

If a financial asset would otherwise meet the SPPI test, but fails to do so only as a result of a contractual term that permits or requires prepayment before maturity, or permits or requires the holder to put the instrument back to the issuer, then the asset can be measured at amortised cost or FVOCI if:

  • the relevant business model test is satisfied; Instruments with certain par prepayment features
  • the entity acquired or originated the financial asset at
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Financial liabilities not at amortised costs

IFRS 9 retains almost all of the existing requirements from IAS 39 on the classification of financial liabilities – including those relating to embedded derivatives – because the Board believes that the benefits of changing practice would not outweigh the costs of the disruption caused by such a change. [IFRS 9 BCE 12] Financial liabilities not at amortised costs

Therefore under IFRS 9, financial liabilities after initial recognition are subsequently classified as measured at amortised cost, except for the following instruments. [IFRS 9 4.2.1IFRS 9 4.2.2]

Financial liabilities not at amortised costs

Measurement requirements

Financial liabilities that are held for trading – including derivatives


Financial liabilities that are designated as at FVTPL on initial

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Commitments in financial statements

Commitments are items that are not reported as liabilities as of the balance sheet date. Some of these items are reported in the notes to the financial statements. Examples include non-cancelable (as at balance sheet date) binding contracts to rent space in the future or to purchase items at specified prices. Commitments in financial statementsPlan to sell a factory Highly probable Plan to sell a factory Highly probable

A financial commitment is a commitment to an expense at a future date. Commitments in financial statements

A capital commitment is the projected capital expenditure a company commits to spend on non-current assets over a period of time. Commitments in financial statements

Financial or capital commitment revolves around the designation of funds for a particular purpose including any future liability. Most commonly, this includes regular … Read more

Loan receivable classification and measurement

Once it has been determined that a loan receivable is within the scope of IFRS 9, it must be classified into one of three categories:

  1. Amortised cost; Loan receivable classification and measurement
  2. Fair Value through Profit or Loss (FVPL); or Loan receivable classification and measurement
  3. Fair Value through Other Comprehensive Income (FVOCI).

The classification decision is based on (i) the business model within which the loan is held and (ii) whether its contractual cash flows meet the ‘solely payments of principal and interest’ (SPPI) test, as illustrated below:

Business model > Hold to collectHold to collect and sellOther
Cash Flow CharacteristicSPPIAmortised costsFVOCIFVPL

All related company loan receivables Read more