Classification and measurement — Own credit and IFRS 9 effective date

Date recorded:

At this meeting the IASB were asked to make decisions regarding:

  • The early application of the own credit risk requirements in IFRS 9
  • The effective date of IFRS 9

At the September 2012 meeting, the IASB tentatively decided to propose an amendment to IFRS 9 that would allow entities to early apply only the own credit requirements once IFRS 9 was completed.  In other words, this would effectively allow entities to apply the own credit requirements in conjunction with the classification and measurement requirements in IAS 39 Financial Instruments: Recognition and Measurement.  This proposed amendment was included in the Exposure Draft Classification and Measurement: Limited Amendment to IFRS 9 with a specific question that invited comments from respondents. 

The IASB did not propose any changes to the mandatory effective date of IFRS 9 (1 January 2015) as part of the limited amendments to IFRS 9.  However, as part of the Exposure Draft Expected Credit Losses the IASB noted that all phases of IFRS 9 have the same effective date.  In that exposure draft, the IASB asked for feedback on the lead time required to implement the proposals on expected credit losses and what the resulting mandatory effective date for IFRS 9 should be. 

Early application of own credit requirements

Nearly all respondents to the Limited Amendment to IFRS 9 exposure draft supported that entities should be permitted to early apply only the own credit requirement in IFRS 9.  However, most of these respondents also asked the IASB to make these requirements available for early application before the IFRS 9 project is completed and the final Standard is issued.   These respondents argue that this could be accomplished by incorporating the own credit requirements into IAS 39. 

The staff cited the following concerns with amending IAS 39:

  • Care would be needed if IAS 39 was to be amended for any unintended consequences, given that the own credit requirements were drafted in the context of a different standard.
  • If an amendment to IAS 39 was to be made, it would arguably require an exposure draft.  This would require staff to shift their focus from completing IFRS 9.  There could also be a significant time delay in finalising such an amendment given the due process guidance that would need to be followed.
  • Amending IAS 39 when it is about to be replaced by IFRS 9 could also add to complexity and confusion given the number of versions of IFRS 9 that currently exist.  This would introduce a different version of IAS 39.

Some Board members supported an approach of amending IAS 39 because they believed that it would be more transparent.  However, others believed that an approach that amends IAS 39 would cause major delays.  Consequently, 13 members voted for the staff recommendation to incorporate the early application of only the own credit requirements into IFRS 9 in the forthcoming amendment that will add the hedge accounting chapter to IFRS 9.  

Mandatory effective date

Many respondents urged the Board to confirm as soon as possible that the mandatory effective date of IFRS 9 would be deferred (again).  Respondents noted that the IASB has a practice of allowing a minimum of 18 months between the finalisation of a Standard and the mandatory effective date.  They noted that even if the remaining phases of IFRS 9 were to be completed by the end of 2013, there would not be 18 months until the mandatory effective date of 1 January 2015. 

The staff stated that prior to finalising the expected credit loss approach it is not possible to recommend an appropriate mandatory effective date for IFRS 9 at this stage.  The feedback received in response to the ED indicated that preparers would need at least 3 years to implement the proposed credit loss model. 

Consequently, the staff proposed to amend the effective date paragraph by deleting the 1 January 2015 mandatory effective date, without replacing it with an exact mandatory effective date.  The effective date will then be added as an amendment to IFRS 9 when all the different phases are completed. 

The Board voted unanimously in favour of the staff recommendation.  The Board will include a paragraph in the Basis for Conclusions to IFRS 9 that will explain that a mandatory effective date will be added when all phases of IFRS 9 are completed with sufficient lead time for implementation. 

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