Financial Instruments: Classification and Measurement

Date recorded:


The Board revisited its earlier tentative decision on the scope of the forthcoming IFRS. Many Board members had become increasingly concerned that introduction of the frozen credit spread for financial liabilities would create severe unintended consequences (for instance, measurement of derivatives embedded in financial hosts and implications for fair value option). Moreover, this particular decision would make convergence with FASB increasingly difficult.

The Board expressed its desire to rediscuss this issue and consider additional outreach activities. Therefore, the Board unanimously decided to exclude financial liabilities from the scope of the forthcoming IFRS. The Board would rediscuss this issue immediately after the IFRS is issued and try to come with a common solution with the FASB on treatment of financial liabilities.

Effective Date

The Board discussed the proposed mandatory effective date for the IFRS. Some Board members thought that the IFRS should be mandatorily adopted only as a whole package at the same time (with all the other parts of the IAS 39 replacement) and preferably at the same time as the second phase of the insurance contracts project. On the other hand, some Board members felt that in this way comparability would be impeded for a relatively long period of time. Finally, the Board agreed that a mandatory effective date of the finalised guidance on classification and measurement of financial instruments would be for annual periods beginning on 1 January 2013 or later. The Board noted that until then, constituents should have sufficient time to prepare for all the phases of the IAS 39 replacement project. Nonetheless, the Board noted that if there was a need to delay further the mandatory effective date, for example due to the Impairment phase adoption, that would be possible.

The Board agreed without much discussion to permit early application of the final IFRS and to require the transition disclosures for all entities adopting the new IFRS (not just for entities adopting them early as proposed in the ED).

Nevertheless, some Board members expressed their concerns that permitting early adoption might lead to lack of comparability and consistency in financial reporting.


The Board discussed transition requirements. As the discussion progressed, some of the Board members become increasingly concerned that proposed transition could lead to a complete free choice and would lead to window-dressing of financial statements.

After a substantial discussion the Board agreed to permit determining the date of initial application of this IFRS at any date between issue of the IFRS and 31 December 2010. Thereafter, an entity could determine the date of initial application at the beginning of the reporting period only.

The Board agreed not to require restatement of comparative periods in 2009-2011 period. However, for all the periods after 1 January 2012 comparative information would have to be provided. The Board also agreed with the principle (consequential amendment to IFRS 1) that first-time adopters should not be in a more onerous position in restating comparative periods that entities already applying current IAS 39. The Board also decided not to require early adoption of subsequent guidance (other phases of IAS 39 replacement project) if any previous guidance was adopted. Nonetheless, the Board agreed to limit the number of choices by requiring early adoption of any preceding final guidance if subsequent guidance was early adopted.

Some Board members were concerned that requiring restating of comparative periods would lead to lower quality of the data as well as practical problems (for example, with financial instruments already derecognised). Nonetheless, the majority of the Board were of the opinion that such a requirement is necessary to ensure a basic level of comparability and consistency.

On the other issues the Board decided to finalise the guidance as proposed in the ED on impracticability of retrospective application and disclosure requirements.

The Board decided not to permit 'grandfathering' of the accounting for hybrid contracts with financial hosts given its decision on scoping liabilities out of the IFRS.

The Board also agreed to remove the provision for discontinuance of hedge accounting relationships that did not qualify under the new classification model as they would be effectively a null set.

Finally, the Board decided not to provide any guidance on potential transition relief for future phases of IAS 39 replacement project.

Transitional insurance issues

The Board considered the interaction between classification and measurement phase of the IAS 39 replacement project and Phase II of the project on insurance contracts. The Board agreed that if the effective dates of these projects are different, additional accounting mismatches might occur. Nonetheless, as the Board believed that mandatory adoption in 2013 might be achievable for both of these projects, it did not provide any additional relief for insurance companies (such as temporary exemption to maintain an AFS portfolio). The Board agreed that as part of the transitional requirements of the insurance contracts IFRS, a transitional option to reclassify financial assets on adoption of Phase II of insurance contracts should be considered. The Board also agreed to include such discussion in the Basis for Conclusions of the Classification and Measurement IFRS.

The Board also considered consequential amendment of IFRS 4 to modify shadow accounting for insurance contracts or financial instruments containing a discretionary participation feature (allow adjustment to the insurance liability to be recognised in other comprehensive income (OCI) if a realised gain or loss on an asset is recognised in OCI). The Board decided against such a change as it believed that OCI presentation for equity instruments was a choice, and thus an accounting mismatch might be avoided by not using the option.

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