Need to know — IASB finalises IFRS 9 which changes the classification and measurement of financial assets and introduces an expected loss impairment model

Published on: 31 Jul, 2014

This newsletter discusses the IASB's final Standard, IFRS 9 "Financial Instruments".

IFRS 9 is now complete and replaces IAS 39 Financial Instruments: Recognition and Measurement.

This final version of IFRS 9 supersedes all previous versions of IFRS 9 and is effective for annual periods beginning on or after 1 January 2018 (subject to EU endorsement).

The Standard introduces a new measurement category of fair value through other comprehensive income (FVTOCI) which will apply for debt instruments held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets.

The Standard has more guidance on how sales of financial assets arising other than as a result of credit deterioration should impact the business model assessment.

IFRS 9 also introduces a new impairment model based on expected credit losses that will apply to debt instruments measured at amortised cost or FVTOCI, lease receivables, contract assets and certain written loan commitments and financial guarantee contracts.

The loan loss allowance will be for either 12-month expected losses or lifetime expected losses. The latter applies if credit risk has increased significantly since initial recognition of the financial instrument. A different approach (similar to that under IAS 39) applies for purchased or originated credit-impaired financial asset (e.g. distressed debt).    


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