A Closer Look — Impact of transition from IAS 39 to IFRS 9 on the exchange of modification of financial liabilities

Published on: 06 Dec 2017

The accounting for certain modifications and exchanges of financial liabilities measured at amortised cost (e.g. bank loans and issued bonds) will change on transition from IAS 39 Financial Instruments: Recognition and Measurement to IFRS 9 Financial Instruments. This change arises from a clarification by the IASB in the Basis for Conclusions of the amendments to IFRS 9 Prepayment Features with Negative Compensation issued on 12 October 2017.

The IFRS 9 accounting treatment is applicable from 1 January 2018 (the effective date of IFRS 9, or earlier if IFRS 9 is adopted early) and will need to be applied retrospectively to all affected financial liabilities that continue to be recognised on transition from IAS 39. This will result in a transition adjustment and a change to the effective interest rate for the financial liabilities affected.

In the first part of this publication we:

  • give an overview of the accounting for an exchange or modification of a financial liability under both IAS 39 and IFRS 9;
  • set out the process through which the accounting was clarified; and
  • explain the impact of the change on transition from IAS 39 to IFRS 9 including some of the issues that may arise in practice.

The second part of this publication is a detailed illustrative example of a modification of a financial liability under IAS 39 and the effect of transitioning to IFRS 9.


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