Overview

IFRS 9, Financial Instruments requires an entity to classify financial assets as subsequently measured at amortized cost, fair value through other comprehensive income or fair value through profit or loss on the basis of both:

1. the entity’s business model for managing the financial assets; and
2. the contractual cash flow characteristics of the financial asset.

A financial asset is required to be measured at fair value through profit or loss if its cash flows are not solely payments of principal and interest on the principal amount outstanding. Paragraphs B4.1.7 to B4.1.26 of IFRS 9 set out requirements for making this assessment.

In September 2021, the IASB issued Request for Information Post-implementation Review of IFRS 9—Classification and Measurement.

Feedback indicated that, in general, the requirements in IFRS 9 relating to assessing the contractual cash flows of financial assets work as intended. However, aspects of the requirements could be clarified to support consistent application, for example in the case of financial assets with ESG-linked features and contractually linked instruments.

At its meeting on May 23-27, 2022, the IASB decided to add a standard-setting project to its agenda to make narrow scope amendments to clarify the requirements for assessing a financial asset’s contractual cash flow characteristics.

At its meeting on October 24, 2022, the IASB broadened this project to include the following three amendments to IFRS 9:

• Contractual cash flow characteristics, clarification of the requirements to assess whether a financial asset’s contractual cash flows are solely payments of principal and interest and new requirements to disclose information about the variability in contractual cash flows for financial assets and financial liabilities not measured at fair value through profit or loss.
• Electronic cash transfers, proposed amendments to the derecognition requirements in IFRS 9 to permit an accounting policy choice to allow an entity to derecognise a financial liability before it delivers cash on the settlement date when specified criteria is met.
• Equity instruments and other comprehensive income, proposed amendments to IFRS 7: Disclosures would require disclosure of the aggregated fair value of equity investments for which the OCI presentation option is applied at the end of the reporting period; and changes in fair value recognized in other comprehensive income during the period.

On March 21, 2023, the IASB published an Exposure Draft 'Amendments to the Classification and Measurement of Financial Instruments (Proposed amendments to IFRS 9 and IFRS 7).

On April 28, 2023, the AcSB issued its Exposure Draft which corresponds to the IASB’s Exposure Draft on this topic.

The proposed changes are:

Derecognition of a financial liability settled through electronic transfer: 

• The IASB proposes amendments to the application guidance of IFRS 9 to permit an entity to derecognize a financial liability that is settled using an electronic payment system even if cash has not yet been delivered by the entity if specified criteria are met. An entity that elects to apply the proposed derecognition option would be required to apply it to all settlements made through the same electronic payment system.

Classification of financial assets:

• Contractual terms that are consistent with a basic lending arrangement. The IASB proposes amendments to the application guidance of IFRS 9 to provide guidance on how an entity can assess whether contractual cash flows of a financial asset are consistent with a basic lending arrangement. To illustrate the changes to the application guidance, the IASB proposes adding examples of financial assets that have, or do not have, contractual cash flows that are solely payments of principal and interest on the principal amount outstanding.
• Assets with non-recourse features. The IASB proposes amendments to enhance the description of the term ‘non-recourse’. Under the amendments, a financial asset has non-recourse features if an entity’s contractual right to receive cash flows is limited to the cash flows generated by specified assets both over the life of the financial asset and in the case of default. 
• Contractually linked instruments. The IASB proposes to clarify the description of transactions containing multiple contractually linked instruments that are in the scope of IFRS 9. The proposed amendments would also introduce an example of when transactions with multiple debt instruments do not meet the criteria of transactions with multiple contractually linked instruments. In addition, the proposed amendments clarify that the reference to instruments in the underlying pool can include financial instruments that are not within the scope of the classification requirements.

Disclosures:

• Investments in equity instruments designated at fair value through other comprehensive income. The IASB proposes amendments to IFRS 7 to require disclosure of an aggregate fair value of these equity instruments rather than the fair value of each instrument at the end of the reporting period and the changes in fair value presented in other comprehensive income during the period.
• Contractual terms that could change the timing or amount of contractual cash flows. The IASB proposes to require the disclosure of contractual terms that could change the timing or amount of contractual cash flows. The requirements would apply to each class of financial asset measured at amortised cost or fair value through other comprehensive income and each class of financial liability measured at amortized cost.

Com­ments to the IASB are re­quested by July 19, 2023 and to the AcSB by July 7, 2023.

Other developments

April 2023

On April 29, 2023, the IASB staff updated the work plan to indicate that the Board plans to review the Exposure Draft Feedback in Q3/2023.

Mars 2023

On March 21, 2023, the IASB published an Exposure Draft 'Amendments to the Classification and Measurement of Financial Instruments (Proposed amendments to IFRS 9 and IFRS 7). Comments are requested by July 19, 2023.

January 2023

On January 30, 2023, the IASB staff updated the work plan to indicate that the Board plans to issue an Exposure Draft in March 2023.  

December 2022

On December 19, 2022, the IASB staff updated the work plan to indicate that the Board plans to issue an Exposure Draft in Q1/2023.

October 2022

On October 25, 2022, the IASB staff updated the work plan to indicate that the Board plans to issue an Exposure Draft in the first half of 2023.

May 2022

At its meeting on May 23-27, 2022, the IASB decided to add a standard-setting project to its agenda to make narrow scope amendments to clarify the requirements for assessing a financial asset’s contractual cash flow characteristics.