Accounting for Financial Instruments — IASB Tentatively Decides on Scope of Amendments to IFRS 9

Published on: 14 Dec 2011

Yesterday, the IASB tentatively decided on the scope of its project to amend IFRS 9.1 The IASB will consider:

  • Amending the contractual cash flow characteristics test to address application issues raised by some constituents, including questions about the application of this test to debt instruments with interest rate reset provisions that refer to rates that do no match the remaining maturity of the instrument.
  • Amending the cash flow characteristics test to address constituent concerns related to the prohibition in IFRS 9 against bifurcating embedded derivatives from a financial asset host, or possibly providing an option to bifurcate such derivatives.
  • Developing a third business model category under which some debt instruments would be accounted for at fair value with changes in fair value recognized in other comprehensive income (FVTOCI).

Editor’s Note: The FASB’s tentative model on the classification and measurement of financial instruments permits certain debt instruments to be classified as FVTOCI. The FASB’s tentative model also retains the requirement in ASC 8152 to identify and separately account for certain derivatives embedded in financial liability and financial asset host contracts. The IASB’s tentative decision may lead to convergence between IFRS 9 and the FASB’s tentative model in these two areas.

The IASB also tentatively decided to develop educational material for IFRS 133 to clarify the measurement principles applicable to equity instruments for which it is difficult to measure fair value or for which limited information is available that could be used in such a measurement.

The IASB decided not to include the following topics in the project to amend IFRS 9:

  • The scope or mechanics of the option under IFRS 9 to measure investments in equity instruments that are not held for trading at FVTOCI. The staff received feedback indicating that entities are using this exemption, or plan to use it, for equity instruments more widely than the Board originally intended (i.e., for “strategic” equity investments). However, the IASB tentatively decided not to explore potential changes to this option.
  • A possible exemption from the requirement to measure equity investments at fair value with changes in fair value recognized in net income (unless optionally designated as FVTOCI) for unquoted or nonmarketable equity securities. Such an option might permit nonmarketable equity securities to be measured at cost less impairment and is sometimes referred to as a “cost exemption.” The IASB tentatively decided not to explore such an option.

Editor’s Note: The FASB’s tentative model does not permit equity instruments to be classified as FVTOCI but does permit nonpublic entities holding nonmarketable equity securities to account for them at cost less impairment, with adjustments for observable price changes.


[1] The IASB tentatively decided on November 15, 2011, to consider changes to the classification and measurement requirements in IFRS 9, Financial Instruments.

[2] FASB Accounting Standards Codification Topic 815, Derivatives and Hedging.

[3] IFRS 13, Fair Value Measurement.

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