Accounting for Financial Instruments — IASB Tentatively Decides to Reopen IFRS 9

Published on: 16 Nov 2011

Yesterday, the IASB tentatively decided to consider changes to the classification and measurement requirements in IFRS 9, Financial Instruments. This decision will enable the Board to address potential application issues in IFRS 9 and to consider (1) the interaction between these requirements and tentative decisions made as part of the IASB’s project on insurance contracts and (2) potential convergence with the FASB’s model on the classification and measurement of financial instruments. Because significant changes would be disruptive for companies that early adopt IFRS 9 or for those that have made significant implementation efforts, the Board decided that these changes should be made as soon as possible and that the scope of changes should be limited.

Interaction With Project on Insurance Contracts

In its July 2010 exposure draft on the accounting for insurance contracts, the IASB proposed that insurance liabilities should be remeasured through profit and loss. Such remeasurement could create an accounting mismatch because assets held by an entity to back its insurance liabilities may be measured at amortized cost or at fair value through other comprehensive income (FVTOCI). Furthermore, the IASB is currently exploring presentation requirements that would disaggregate remeasurement adjustments between those attributable to changes in the discount rate from all other factors affecting the measurement of an insurance contract liability. The former would be presented in OCI. However, an entity can only measure equity securities not held for trading at FVTOCI if the entity makes an irrevocable election to do so at initial recognition. The Board’s changes to IFRS 9 would address these accounting mismatches.


The FASB’s deliberations on the classification and measurement of financial instruments under U.S. GAAP are nearly complete. The FASB has indicated it will share its final model with the IASB once complete. The FASB still needs to deliberate the scope, effective date, and transition method before issuing an updated exposure draft, expected in 2012. The IASB has also indicated that it will expose the FASB’s model to the IASB’s constituents for public comment. Yesterday’s vote by the IASB may open the door for changes to the classification and measurement requirements in
IFRS 9 that achieve convergence with the FASB’s model.

Editor’s Note: Some IASB members expressed concern that reconciling IFRS 9 with the FASB’s model might lead to “scope creep” because some of the differences are significant. For example, the FASB’s model prohibits the reclassification of all financial instruments, while IFRS 9 permits an entity to reclassify financial assets when an entity’s business strategy changes. Furthermore, the FASB’s tentative model retains the requirement to bifurcate certain embedded derivatives from hybrid financial assets, while IFRS 9 requires an entity to classify and measure hybrid financial assets in their entirety (i.e., without bifurcating embedded derivatives). One member indicated that the IASB should have the benefit of constituent feedback on the FASB’s model when deciding on changes to IFRS 9.

Separately, the IASB at its November 7, 2011, meeting decided to defer the mandatory effective date of IFRS 9 by requiring application for annual periods beginning on or after January 1, 2015, rather than January 1, 2013.

For more information about the FASB and IASB’s joint project on the classification and measurement of financial instruments, see Deloitte’s May 10, 2011, Heads Up and its May 27, June 1, June 13, June 22, August 12, and September 9, 2011, journal entries.

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