IFRS implementation issues

Date recorded:

IFRS Implementation Issues — Agenda paper 12

The purpose of this session was 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 should recognise a gain or loss in profit or loss (P/L) when a financial liability was modified or exchanged and that modification or exchange did not result in the derecognition of the financial liability. The gist of the issue was 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 adjusted 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 was non-authoritative, and that people might not even be aware that the IC had reached such a conclusion. The IC also rejected amending IFRS 9 as they believed that the requirements of IFRS 9 did not need to be changed – all that was needed was 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 recommendations

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


There was no support for issuing an interpretation. The Board suggested that the IC publish their conclusion in an agenda decision, to be supported by further educational material (e.g. a webcast) to give more prominence to their decision.

The Board believed that the requirements of IFRS 9 are sufficiently clear to support the IC’s conclusion, and that the need for greater prominence is not a reason for issuing an interpretation.

As an aside, the Staff said that they would explore other ways of communicating the IC’s decisions with stakeholders to help facilitate change management (e.g. creating a new category called ‘educational agenda decisions’ or coupling an agenda decision with other educational material to give more prominence to particular IC decisions).

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 was expected to be exposed to credit risk for financial instruments such as credit card facilities within the scope of the IFRS

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

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

IFRS 9.B5.5.40 set 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) required an entity to consider the credit risk management actions that it expected to take once the credit risk on the financial instrument had increased when determining the expected life of the instrument.

The Staff’s analysis set 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 was set before any credit mitigation actions were taken) could affect the expected life. Furthermore, the Staff explained how different instruments within a portfolio might have different expected lives based on their risk exposures. This was because an entity would likely have different credit risk mitigation actions for instruments with different risk exposures.

Staff recommendation

The Staff recommended preparing a webcast to provide education on this topic.


The Board approved the Staff’s recommendation with no discussion.


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