Accounting for Financial Instruments — IASB Proposes Limited Amendments to IFRS 9

Published on: 29 Nov 2012

Yesterday, the IASB released an exposure draft (ED)1 for public comment that would make limited amendments to the classification and measurement (C&M) requirements in IFRS 9. These amendments are designed to (1) take into account the interaction between these requirements and the tentative decisions made as part of the IASB’s project on insurance contracts, (2) address certain questions related to the application of these requirements, and (3) reduce key differences between the C&M requirements in IFRS 9 and the FASB’s tentative C&M model.

The most significant of the proposed amendments are related to a new measurement category for debt-instrument financial assets, fair value through other comprehensive income (FV-OCI). A financial asset is placed in this category if (1) management holds it “in a business model in which assets are managed both in order to collect contractual cash flows and for sale” and (2) it passes the contractual cash flows assessment, which requires that such cash flows “give rise on specified dates solely to payments of principal and interest on that principal.” In related amendments, the IASB proposes requiring entities to:

  • Record all changes in the fair value of assets in the new category within OCI, other than impairment losses and fair value changes attributable to fluctuations in foreign exchange rates.
  • Recycle gains and losses accumulated in OCI to profit and loss when an entity sells an asset out of the FV-OCI category.
  • Apply new guidance for reclassifications into or out of the FV-OCI category.

The IASB also provides new application guidance, including examples of assets that qualify for the FV-OCI category.

Editor’s Note: The IASB did not amend paragraph 4.1.5 of IFRS 9 (2010), which permits entities to irrevocably designate a financial asset at FV-NI if doing so eliminates or significantly reduces an accounting mismatch. It appears that this option also applies to assets that would otherwise be accounted for at FV-OCI.

Other proposed amendments to IFRS 9 include (1) new and modified application guidance related to the cash flow characteristics and amortized-cost business model assessments, (2) amended language characterizing FV-NI as a residual category, required for all assets that are not held within a business model that is consistent with either amortized cost or FV-OCI, (3) new transition guidance, and (4) other limited amendments.

Regarding transition guidance, an entity that has already early adopted IFRS 9 (2009), IFRS 9 (2010), or a soon-to-be finalized version of IFRS 9 that incorporates a new chapter on hedge accounting is not required to adopt the ED’s proposed amendments before the current effective date for all provisions in IFRS 9 (i.e., annual periods beginning on or after January 1, 2015). On the basis of the ED’s other transition proposals, an entity that wishes to early adopt IFRS 9 would no longer be permitted to choose which version to early adopt but would be required to apply the completed version when finalized. However, an entity may choose to early adopt a provision requiring entities to present within OCI changes in the fair value of financial liabilities at FV-NI under the fair value option to the extent that these changes are attributable to the liability’s credit risk. Changes in fair value attributable to other factors would be recognized in profit and loss.

Comments on the proposed amendments are due by March 28, 2013.


[1] IASB Exposure Draft, Classification and Measurement: Limited Amendments to IFRS 9 — proposed amendments to IFRS 9 (2010).

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