IFRS 9 — Dual currency bonds

Date recorded:

IFRS 9 Financial Instruments Classification of a particular type of dual currency bonds (Agenda Paper 8)


The Committee received a request in relation to how to apply paragraphs 4.1.2(b) and 4.1.2A(b) of IFRS 9, which relate to determining whether a financial instrument has contractual cash flows that are solely payments of principal and interest on the principal amount outstanding.

The submitter describes a ‘dual currency bond’ with a par amount denominated in one currency and fixed interest coupon payments denominated in another currency. The fixed interest payments are paid annually and the par amount is repaid at a stated maturity date.

The submitter says it is unclear whether the analysis must be performed for the bond as a whole based on the currency in which the par amount is denominated or whether the dual currency bond can be considered as having two components with each having cash flows in the same currency.  

Staff analysis

The staff asked standard setters, securities regulators and the large accounting networks whether dual currency bonds are common. The staff received 12 responses.  Almost all respondents said the dual currency bond described in the submission is not common, although some explained that the instrument was common in the past in particular jurisdictions (and some such instruments may remain outstanding), but it is no longer common. One respondent said that dual currency bonds are common in the banking industry but that there are many different variations of dual currency bonds and they are held in different business models such as ‘hold to maturity’, ‘hold or sell’ and ‘trading’.

Staff recommendation

The staff are recommending that the Committee not add the item to its agenda, on the grounds that there is insufficient evidence that the matter has widespread effect or is expected to have a material effect on those affected.


The Chair opened this issue by stating that she was concerned that the paper and agenda decision could create a perception that the Committee was not willing to answer any IFRS 9 questions, in case they were disruptive during the early application of IFRS 9. She said that this is not the case and that these questions are different in nature to the ones the Committee has considered on IFRS 15, which is also in its first period of application.

Several members welcomed that clarification, because they had concerns about this paper. In particular, paragraph 16 of the agenda paper states:

We note that entities are required to apply IFRS 9 for annual periods beginning on or after 1 January 2018. We are unaware that dual currency bonds are causing problems in the implementation of IFRS 9. Furthermore, the Board has received a clear message from many stakeholders that discussions on IFRS 9 so close to its effective date has the potential to be disruptive, rather than helpful, to entities’ implementation activities. Entities have already used judgement to apply the SPPI condition in good faith to a large number, and wide variety, of financial assets. Stakeholders have told us that discussions on a specific matter, even if narrow in scope, can have unintended consequences on the accounting for other assets.

Several committee members contrasted this with the approach the committee had taken to IFRS 15 and the complete absence of analysis in this paper. The Committee needs to be careful about messaging because it has made a commitment for to make agenda decisions more educative, and this is not helpful and that “the attitude towards the enquiry needs to be rephrased.”

One member noted that this is also the time when things get embedded and so the disruption can be helpful. Furthermore, if the analysis shows that the answer is not obvious then this implies potential diversity. This is a reason why the absence of analysis in the paper is unhelpful to the Committee. One member thought the question of widespread or not relates to the agenda decision, not whether to do any analysis in the staff paper.

One member asked why the Committee could not address this when IFRS 9 addresses it on the issuer side. He also suggested that the Committee could be helpful by stating that you cannot separate into components a single instrument for the purposes of making a SPPI assessment, which some other members agreed with. There was a concern that there was a broader issue.

Before taking a vote, it was agreed that the words “or is expected to have a material effect on those affected” should be removed from the tentative decision, because the Committee had no evidence that this would be the case.  

The Committee decided (11:3) to issue a tentative decision not to add this item to its agenda.

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