IFRS implementation issues

Date recorded:

IFRS Implementation Issues - Agenda paper 12

The purpose of this session is to discuss the following:

  • IFRS 9 Financial Instruments: Modification or exchange of financial liabilities – IC tentative decisions: Agenda paper 12A
  • IFRS 9 Financial Instruments: IFRS 9 Impairment – application of the requirements in paragraph B5.5.40(c) of IFRS 9: Agenda paper 12B

IFRS 9 Financial Instruments: Modification or exchange of financial liabilities – IC tentative decisions – Agenda Paper 12A


In November 2016, the IC discussed the question of whether an entity recognises a gain or loss in profit or loss (P/L) when a financial liability is modified or exchanged and that modification or exchange does not result in the derecognition of the financial liability. The gist of the issue is whether the financial liability’s EIR should be revised in such a case. See AP 6 to the IC’s November 2016 meeting for details. In short:

  • Outreach conducted by the Staff indicated that most entities adjust the EIR in such instances under IAS 39, resulting in the gain/loss on modification being amortised to P/L over the remaining life of the modified financial liability (so no gain/loss recognised in P/L on the day of modification). These entities expect to continue with such practice under IFRS 9.
  • In contrast, the IC believed that the EIR should not be adjusted in such instances under IFRS 9. Accordingly, a gain/loss should be recognised in P/L on the day of modification.

The IC then discussed whether they should publish their conclusion as an agenda decision, as an amendment to IFRS 9, or as an interpretation.

The IC rejected the agenda decision approach on grounds that it is non-authoritative, and that people might not even be aware that the IC has reached such a conclusion. The IC also rejected amending IFRS 9 as they believed that the requirements of IFRS 9 do not need to be changed – all that is needed is an authoritative explanation of how to apply the relevant requirements to the case at hand. Accordingly, the IC tentatively decided to develop a draft interpretation.

Staff recommendation

The Staff will ask the Board whether they would object to the development of a draft interpretation on this issue.

IFRS 9 Financial Instruments: IFRS 9 Impairment – application of the requirements in paragraph B5.5.40(c) of IFRS 9 – Agenda Paper 12B


A question arose in practice on how to determine the period over which the entity is expected to be exposed to credit risk for financial instruments such as credit card facilities within the scope of the IFRS

This paper summarises the relevant requirements of IFRS 9 and the discussions on this topic by the Transitional Resource Group for Impairment of Financial Instruments. The Board will be asked to confirm its intention behind the relevant requirements.

When measuring expected credit losses (ECL), IFRS 9 generally requires that the maximum period to consider is limited to the maximum contractual period over which the entity is exposed to credit risk and not a longer period, even if that period is consistent with business practice. IFRS provides an exception to this principle in that for certain qualifying financial instruments, the entity should measure ECL over the period that the entity is exposed to credit risk even if that period extends beyond the maximum contractual period.

IFRS 9.B5.5.40 sets out three factors that an entity should consider in determining such a period (the ‘expected life’ of the instrument). In particular, B5.5.40(c) requires an entity to consider the credit risk management actions that it expects to take once the credit risk on the financial instrument has increased when determining the expected life of the instrument.

The Staff’s analysis sets out how the nature and extent of credit risk mitigation actions (e.g. withdrawal of undrawn facility versus contacting the customers for payment with no removal of the undrawn facility; and the level at which the threshold is set before any credit mitigation actions are taken) could affect the expected life. Furthermore, the Staff explains how different instruments within a portfolio might have different expected lives based on their risk exposures. This is because an entity would likely have different credit risk mitigation actions for instruments with different risk exposures.

Staff recommendation

The Staff intends to prepare a webcast to provide education on this topic.

Related Topics

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.