IFRS 9 — Limited amendments (classification and measurement) (IASB and FASB)

Date recorded:

At this session the staff summarised some of the feedback received by the IASB on its exposure draft ED/2012/4 Classification and Measurement: Limited Amendments to IFRS 9.

The comment period on the ED ended on 28 March and the IASB had received 167 letters and had over 40 formal outreach meetings. Further outreach is taking place, such as the online survey of users as well as other joint outreach with the FASB.

The session was kept brief and at a high-level as the staff intends to come back to the Board with more detailed feedback.

 The staff summarised feedback in respect of the following key topics:


Contractual cash flows characteristics assessment

Nearly all respondents agreed that a financial asset can have cash flows that, for the purposes of IFRS 9, represent solely payments of principal and interest, even if the economic relationship between the principal and the consideration for the time value of money and credit risk is modified. They supported the IASB’s efforts to clarify this point and noted that the proposals would result in more appropriate classification outcomes. However many respondents stated that the proposed clarifications do not go far enough in addressing common application questions and raised a number of detailed questions and concerns. For example it was proposed by some that the scope should be wider, the threshold for passing the test lower and the application guidance clearer.  Many raised a broader question of how the principle should be applied and asked for more clarity in this regard. It was noted that most preferred the principal and interest principle but some still preferred embedded derivative accounting for assets.

On discussing the feedback one board member commented that reaffirming the principle would be wise and would help to avoid too detailed application guidance attempting to cover specific examples which he was not in favour of.

One board member asked whether there would be less support for embedded derivative accounting if there was more guidance on application of the principle. The staff felt that this could be the case where further clarification of the principle resulted in some assets that were failing the test now passing and be measured at amortised cost (i.e. the demand for embedded derivative accounting arises primarily where the application of the test results in FVTPL accounting for the instrument).


Business model assessment

A majority of respondents agreed with measuring some debt instruments at fair value through other comprehensive income (FVOCI), however, responses were split relatively evenly between three broad views:

  1. support for the introduction of the mandatory FVOCI measurement category as proposed by the Limited Amendments ED
  2. agreement in principle with measuring some debt instruments at FVOCI, but subject to conditions or different classification requirements compared to those in the ED (for example it was noted that a common comment suggested making FVOCI the residual category due to difficulty in distinguishing between the two business models that result in FVOCI and FVTPL respectively)
  3. disagreement with the proposed introduction of the third measurement category into IFRS 9.

In addition, some respondents were concerned with what they considered inappropriate limitations on the ‘hold to collect’ business model—either due to the proposed clarifications to the ‘hold to collect’ business model, or due to the introduction of the FVOCI category.

The staff explained that some had commented that there was too much focus on the level and frequency of sales making it too restrictive and also that sales by regulators should be consistent with the hold to collect business model.

One board member asked whether there were any regional trends in comments.  The staff explained that in North America there was general support, in Europe there were mixed views across the three broad views discussed above and in Asia some supported and some did not. 

During discussions it was noted that the timings of completing the classification and measurement model and the insurance standard will mean that the Board will need to consider how to address the issues of insurers within the classification and measurement model.  Some commentators had suggested addressing the issues affecting insurers at a later date.

Upon being questioned about user’s views on the ED, the staff explained that a paper presenting user’s views is planned for next month (the survey for users closes 31 May 2013)


Fair value option

Nearly all respondents who commented on the fair value option agreed that the existing fair value option for accounting mismatches in IFRS 9 should be extended to financial assets that would otherwise be mandatorily measured at FVOCI. However, some respondents favoured an unrestricted fair value option for those assets, as has been proposed by the FASB’s proposed ASU, and others advocated an unrestricted fair value option for all financial assets.


Early application of the ‘own credit’ requirements

Nearly all respondents who commented on the ‘own credit’ requirements for financial liabilities welcomed the proposal that entities should be permitted to early apply just those requirements without also applying the rest of IFRS 9. However, nearly all respondents also recommended that the IASB should make just the ‘own credit’ requirements available for early application before the completed version of IFRS 9 is issued by amending IAS 39 and/or IFRS 9 (2010).


Effective date

The staff’s final point of the session noted that many respondents had urged the IASB to confirm as soon as possible that the mandatory effective date of IFRS 9 would be deferred given the lead time required to implement the impairment phase of the IFRS 9. At this point the meeting was adjourned.

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