IFRS - 9

FINANCIAL INSTRUMENTS
International Financial Reporting
Standard - 9
 It addresses the accounting for financial instruments.
 It replaces the earlier IAS – 39.
 Effective on or after January , 2018.
 It contains: a. Classification and measurement of financial instrument
b. Impairment of financial assets
c. Hedge accounting
 It specifies how an entity to classify and measure financial assets, liabilities
and some contracts to buy and sell non-financial items.
Why the new standard?

 IAS -39 is complex.

 It is difficult to put in practice in the organisation for managing the business
risks.
 It does not ensure the measurement of credit loss incurred on the loans and
receivables in proper time.
BASIC TERMS AND CONCEPTS

1) Expected credit loss (ECL) : probability – weighted estimate of credit losses.

Difference in the present value of expected and contractual cash flows.
2) Amortised cost: the amount at which the financial asset or liability is measured at
initial recognition – the principles repayments, +/- cumulative amortisation using
the effective interest method of any difference between that initial amount and
the maturity amount.
3) Fair value through other comprehensive income (FVOCI) and Fair value through
profit and loss (FVPL) : classification categories of financial assets.
4) Solely payments of principle and interest (SPPI): a control on the contractual
terms of an asset to assess whether it can be classified at amortised cost.
5) Credit- impaired financial asset: a financial asset is credit impaired when one or
more events that have a detrimental impact on its estimated future cash flows
have occurred.
Classification of financial assets

 Basis for the classification of financial assets are business model for managing
the assets and the asset’s contractual cash flow characteristics:
1. At amortised cost: this method is applied when, (a) the asset is held within a
business model whose objective is to hold assets in order to collect
contractual cash flows.(b) the contractual terms of the financial assets give
rise on specified dates to cash flows that are solely payments of principle and
interest on the principle amount outstanding.
2. FVOCI : this method is applied when the financial assets are held in a business
model whose objectives is achieved by both collecting contractual cash flows
and selling financial assets.
3. FVPL : any financial assets that are not held in on of the two business models
mentioned are measured at FVPI.
Classification of financial liabilities

 All financial