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IASB proposes amendments to IFRS 9 regarding the classification of certain prepayable financial assets

  • IFRS - IASB Image

Apr 21, 2017

On April 21, 2017, the International Accounting Standards Board (IASB) published an exposure draft "Prepayment Features with Negative Compensation (Proposed amendments to IFRS 9)" to address the concerns about how IFRS 9 "Financial Instruments" classifies particular prepayable financial assets. Comments are requested by May 24, 2017.

Suggested changes

The Board followed the Interpretations Committee's reasoning and therefore ED/2017/3 Prepayment Features with Negative Compensation (Proposed amendments to IFRS 9) proposes a narrow exception to IFRS 9 for particular financial assets that would otherwise have contractual cash flows that are solely payments of principal and interest but do not qualify for amortised cost or fair value through other comprehensive income measurement as a result of a prepayment feature.

The Board proposes that such a financial asset would be eligible to be measured at amortised cost or at fair value through other comprehensive income (depending on a company's business model) if two conditions are met.

The ED also contains proposed amendments to IFRS 7 and IFRS 1 for cases where it is impracticable to assess whether the fair value of a prepayment feature was insignificant at initial recognition.

 

Effective date and transition requirements

The proposed effective date of the amendments is January 1, 2018 (to coincide with the effective date of IFRS 9). The exception would be applied retrospectively, however, certain relief is granted if at the date of initial application it is impracticable for an entity to assess whether the fair value of a prepayment feature was insignificant at initial recognition of the financial asset.

 

Comment deadline

The IASB argues that the matter is narrow in scope and urgent. Consequently, comments on the ED are requested by May 24, 2017.

 

Next steps

In order to meet the intended effective date of January 1, 2018, the Board follows a very tight project timeline. After the end of the comment period in May, the Board intends to redeliberate the issue in June and July 2017 and (if it decides to proceed with the proposed amendments) issue a final amendment by the end of October 2017.

 

Additional information

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