IASB proposes amendments regarding the classification and measurement of financial instruments

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21 Mar, 2023

The International Accounting Standards Board (IASB) has published an exposure draft 'Amendments to the Classification and Measurement of Financial Instruments (Proposed amendments to IFRS 9 and IFRS 7)' to address matters identified during the post-implementation review of the classification and measurement requirements of IFRS 9 'Financial Instruments'. Comments are requested by 19 July 2023.

 

Background

In 2022, the IASB concluded its post-implementation review of the classification and measurement requirements of IFRS 9 Financial Instruments. In general, the IASB found that preparers can apply the requirements consistently. However, the IASB identified some requirements that would benefit from clarification to improve their understandability.

The IASB believed that two of the matters should be addressed quickly and other matters, although of a lower priority, would also benefit from being addressed. The IASB came to the conclusion that it would be most efficient for stakeholders if the IASB proposed all amendments in a single exposure draft.

 

Suggested changes

The proposed amendments in exposure draft IASB/ED/2023/2 Amendments to the Classification and Measurement of Financial Instruments (Proposed amendments to IFRS 9 and IFRS 7) 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 derecognise 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 amortised cost.

Comments on the proposed changes are requested by 19 July 2023.

 

Effective date and transition

The IASB will decide on the effective date for the proposed amendments after exposure. The IASB proposes to require an entity to apply the amendments retrospectively, but not to restate comparative information.

 

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