IFRS 9 – Targeted improvements
Limited reconsideration of IFRS 9
The IASB discussed whether to initiate a review of IFRS 9. The staff told the Board they believed that based on feedback received to date the IFRS 9 was fundamentally sound and operational but they raised the issue of a limited reconsideration of IFRS 9 with the Board for a variety of reasons. The primary reason for the reconsideration of IFRS as presented by the staff was the interaction with the insurance contracts project and classification and measurement of financial assets under IFRS 9. Specifically, the decisions to date in the insurance project would recognise the re-measurement of insurance liabilities with components through profit or loss and other components through other comprehensive income. Meanwhile the financial assets backing those insurance liabilities would either be recognised at either amortised cost or fair value through profit or loss resulting in an accounting mismatch with the associated liabilities. Another reason the staff has raised this issue relates to application issues that some constituents have incurred with specific instruments when early adopting or undergoing implementation efforts of IFRS 9. And finally, the staff notes that the FASB has now completed their redeliberations around financial instrument classification and measurement but with several significant differences to IFRS 9 limited reconsiderations of IFRS 9 could potentially resolve some of those differences and increase the level of convergence.
However, the staff acknowledged that any reconsideration of IFRS 9 should keep in mind that some entities have already early adopted IFRS 9 while other entities have already dedicated significant time and resources to the implementation of IFRS 9. As a result, it recommended that any reconsideration of IFRS 9 be as targeted as possible.
All of the Board members generally agreed that a limited reconsideration of IFRS 9 was appropriate. However the reasons the Board members gave for their support and the level of their support varied. Most Board members also acknowledge the issue with interaction of the insurance contracts project with IFRS 9 and the need to reconsider how best to facilitate that interaction. Several Board members expressed concern about scope creep and emphasised that the reconsideration must be limited and focused. Some Board members mentioned the opportunity for further convergence as an important benefit of a reconsideration of IFRS 9 while other Board members were more sceptical of opening IFRS 9 for the sake of convergence citing other difficulties in financial instrument projects and expressing concern over the FASB's decision to go in another direction even though IFRS 9 was already issued.
Ultimately, the Boards tentatively agreed in a unanimous decision to a limited reconsideration of IFRS 9.
Effective date of revised disclosure requirements
Last week the IASB decided to delay the mandatory effective date of IFRS 9 until annual periods beginning on or after 1 January 2015. The Board also decided that rather than require retrospective application upon initial application of IFRS 9, they would require modified disclosures on transition from the classification and measurement requirements of IAS 39 to IFRS 9. These disclosures would be required even if an entity chose to restate its comparatives.
However, Board members were also concerned over 'punishing' those in the process of applying IFRS 9 early. To address those concerns, the staff brought recommendations to the Board of how to apply the disclosure requirements based on the period of early adoption.
The Board tentatively agreed with the staff recommendations that:
- entities with a date of initial application before 1 January 2012 should not be subject to the disclosure requirements as they were included in the original scope out of comparative information in IFRS 9
- entities with a date of initial application of 1 January 2012 until 31 December 2012 would not be required to provide the disclosure requirements if they provided comparative information but would be permitted to present the modified disclosures instead of restating their comparative information
- entities with a date of initial application of 1 January 2013 or thereafter would be required to present the modified disclosures irrespective of whether they restate their comparatives to reflect IFRS 9.