IASB publishes proposals for limited amendments to IFRS 9

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28 Nov 2012

The International Accounting Standards Board (IASB) has released Exposure Draft ED/2012/4 'Classification and Measurement: Limited Amendments to IFRS 9 (proposed amendments to IFRS 9 (2010))'. The proposed changes would introduce a 'fair value through other comprehensive income' (FVOCI) measurement category for particular financial assets.

The proposed limited scope amendments to IFRS 9 Financial Instruments are designed to:

  • address specific application questions raised by interested parties
  • consider the interaction of the classification and measurement model for financial assets with the IASB’s Insurance Contracts project
  • reduce key differences with the U.S. Financial Accounting Standards Board’s (FASB) tentative classification and measurement model for financial instruments.

The proposed new 'fair value through other comprehensive income' (FVOCI) measurement category would include certain financial assets when two conditions are met:

  • the contractual cash flows of the assets are solely payments of principal and interest and
  • the assets are used in a business model which is neither to exclusively hold nor sell.

In addition, a newly introduced paragraph clarifies that gains or losses on a financial asset in the new measurement category would be recognised in other comprehensive income, with the exception of impairment losses and foreign exchange gains and losses. Upon disposal, any gain or loss previously recognised in other comprehensive income (OCI) would be recycled to profit or loss for the period.

The application guidance for the ED includes several examples of financial assets with contractual cash flows that are solely payments of principal and interest on the principal amount outstanding and of when the entity’s business model may be to manage assets both to collect contractual cash flows and to sell.

The amendments proposed are a step back towards current requirements in IAS 39 Financial Instruments: Recognition and Measurement even though important differences remain.

Use of the new FVOCI category would be mandatory.

The Exposure Draft also proposes that only the completed version of IFRS 9 (including classification and measurement, impairment and general hedge accounting chapters) can be newly applied prior to the mandatory effective date with the exception that entities would be permitted to choose to early apply only the ‘own credit’ provisions in IFRS 9 once the completed version of IFRS 9 is issued. This means that the current choice regarding which version of the standard can be early applied would be dropped.

The comments on the exposure draft close on 28 March 2013.

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