OBJECTIVE AND SCOPE

1. What is the objective of PFRS 9?

The objective of PFRS 9 is to establish principles for the financial reporting of financial assets and
financial liabilities that will present relevant and useful information to users of financial statements for
their assessment of the amounts, timing and uncertainty of an entity's future cash flows.

2. Is there conflict between the objectives of PFRS 9 on one hand and PAS 32 and other standards on the
other?

No. PAS 32 specifies presentation for financial instruments while the recognition and measurement and
the disclosure of financial instruments are the subjects of PFRS 9 or PAS 39 and PFRS 7 respectively.

PAS 32 is a companion to PAS 39, "Financial Instruments: Recognition and Measurement" and PFRS 9,
"Financial Instruments". PAS 39 and PFRS 9 deal with initial recognition of financial assets and liabilities,
measurement subsequent to initial recognition, impairment, derecognition, and hedge accounting. PFRS
9 has replaced PAS 39 in its entirety.

3. What is the scope of application of PFRS 9?

As a general rule, PFRS 9 shall be applied by all entities to all types of financial instruments. This means
that it shall be applied even to investment funds and to derivatives on an interest in a subsidiary,
associate or joint venture unless the derivative meets the definition of an equity instrument of the entity
in IAS 32 Financial Instruments: Presentation. However, PFRS 9 provides certain exceptions from the
blanket applicability of the standard.

The following are the exceptions provided by the standard:

a.

those interests in subsidiaries, associates and joint ventures that are accounted for in

accordance with PFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements or IAS
28 Investments in Associates and Joint Ventures;

b. rights and obligations under leases to which PFRS 16 Leases applies.

C. employers' rights and obligations under employee benefit plans, to which IAS 19 Employee Benefits
applies. d. financial instruments issued by the entity that meet the definition or classification of an

equity instrument

e. rights and obligations arising under a contract within the scope of PFRS 17 Insurance Contracts

f. any forward contract between an acquirer and a selling shareholder to buy or sell an acquiree that will
result in a business combination within the scope of PFRS 3 Business Combinations at a future
acquisition date.

B. loan commitments
h. financial instruments, contracts and obligations under share-based payment transactions to which
PFRS 2 Share-based Payment applies

1. rights to payments to reimburse the entity for expenditure that it is required to make to settle a
liability that it recognizes as a provision in accordance with PAS 37 Provisions, Contingent Liabilities and
Contingent Assets, or for which, in an earlier period, it recognized a provision in accordance with PAS 37

j. rights and obligations within the scope of PFRS 15 Revenue from Contracts with.

Customers

4. Are there instances in which PFRS 9 would still apply even to those expressly exempted from the
blanket applicability of PFRS 9? Phrased differently, are there exceptions to the

exceptions?

Yes. PFRS 9 can be applied to some interests in subsidiaries, associates and joint ventures if it is what
their respective standards require.

As regards leases covered by PFRS 16, finance lease receivables and operating lease

receivables recognized by a lessor are subject to the derecognition and impairment

requirements of PFRS 9. Additionally, lease liabilities recognized by a lessee and derivatives that are
embedded in leases are subject to the derecognition requirements and embedded derivatives
requirements of PFRS 9, respectively.

For equity financial instruments, the issuers of equity instruments may be exempted from the scope of
PFRS 9 but the holders of such equity instruments shall apply PFRS 9 to those instruments unless they
fall under the other exceptions.

As for insurance contracts, PFRS 9 applies to an issuer's rights and obligations arising under an insurance
contract that meets the definition of a financial guarantee contract and to a derivative that is embedded
in a contract within the scope of PFRS 17, if the derivative is not itself a contract within the scope of PFRS
17, and to an investment component that is separated from a contract within the scope of PFRS 17, if
PFRS 17 requires such separation.

Even though loan commitments are generally exempted from the scope of PFRS 9, an

issuer of loan commitments shall apply the impairment requirements of PFRS 9. Also, all loan

commitments are subject to the derecognition requirements of PFRS 9.

Lastly, there are certain financial instruments that fall under the scope of PFRS 15 in which PFRS 15
specifically requires that PFRS 9 should be applied. Also, the impairment requirements of PFRS-9 shall be
applied to those rights that PFRS 15 specifies are accounted for in accordance with PFRS9 for the
purposes of recognizing impairment gains or losses.

5. What other conditions must be present for a forward contract not to be covered by PFRS 9?

The term of the forward contract should not exceed a reasonable period normally necessary to obtain
any required approvals and to complete the transaction.
6. What are the kinds of loan commitments that are covered by PFRS 9?

As a reiteration, loan commitments are generally not covered by PFRS 9. However, PFRS 9 expressly
provides that the following type or class of loan commitments fall within its scope:

a. loan commitments that the entity designates as financial liabilities at fair value through profit or loss
An entity that has a past practice of selling the assets resulting from its loan commitments shortly after
origination shall apply PFRS 9 to all its loan commitments in the same class.

b. loan commitments that can be settled net in cash or by delivering or issuing another financial
instrument - These loan commitments are derivatives. A loan commitment is not regarded as settled net
merely because the loan is paid out in instalments (for example, a mortgage construction loan that is
paid out in instalments in line with the progress of construction).

C. commitments to provide a loan at a below-market interest rate

7. Are there share-based payment transactions that fall under the scope of PFRS 9 instead of PFRS 2?

Yes. PFRS 9 shall be applied to those contracts to buy or sell a non-financial item that can be settled net
in cash or another financial instrument, or by exchanging financial instruments, as if the contracts were
financial instruments, with the exception of contracts that were entered into and continue to be held for
the purpose of the receipt or delivery of a non- financial item in accordance with the entity's expected
purchase, sale or usage requirements. However, PFRS 9 shall be applied to those contracts that an entity
irrevocably designates as measured at fair value through profit or loss.

A contract to buy or sell a non-financial item that can be settled net in cash or another financial
instrument, or by exchanging financial instruments, as if the contract was a financial instrument, may be
irrevocably designated as measured at fair value through profit or loss even if it was entered into for the
purpose of the receipt or delivery of a non-financial item

in accordance with the entity's expected purchase, sale or usage requirements.

8. In what ways can a contract to buy or sell a non-financial item can be settled net in cash or another
financial instrument or by exchanging financial instruments?

There are various ways in which a contract to buy or sell a non-financial item can be settled net in cash
or another financial instrument or by exchanging financial instruments.

These include:

a. when the terms of the contract permit either party to settle it net in cash or another financial
instrument or by exchanging financial instruments;

b. when the ability to settle net in cash or another financial instrument, or by exchanging financial
instruments, is not explicit in the terms of the contract, but the entity has a practice of settling similar
contracts net in cash or another financial instrument or by exchanging financial instruments (whether
with the counterparty, by entering into offsetting contracts or by selling the contract before its exercise
or lapse);
C. when, for similar contracts, the entity has a practice of taking delivery of the underlying and selling it
within a short period after delivery for the purpose of generating a profit from short- term fluctuations in
price or dealer's margin; and

d.

cash.

when the non-financial item that is the subject of the contract is readily convertible to

A contract to which (b) or (c) applies is not entered into for the purpose of the receipt or delivery of the
non-financial item in accordance with the entity's expected purchase, sale or usage requirements and,
accordingly, is within the scope PFRS 9. Other contracts are evaluated to determine whether they were
entered into and continue to be held for the purpose of the receipt or delivery of the non-financial item
in accordance with the entity's expected purchase, sale or usage requirements and, accordingly, whether
they are within the

scope of PFRS 9.

RECOGNITION AND CLASSIFICATION

Initial recognition

9. When should an entity recognize a financial asset or a financial liability?

An entity shall recognize a financial asset or a financial liability in its statement of financial position
when, and only when, the entity becomes party to the contractual provisions of the instrument.

The following are examples of applying the principle as to when financial assets or financial liabilities
should be recognized:

a. Unconditional receivables and payables are recognized as assets or liabilities when the entity becomes
a party to the contract and, as a consequence, has a legal right to receive or a legal obligation to pay
cash.

b. Assets to be acquired and liabilities to be incurred as a result of a firm commitment to

purchase or sell goods or services are generally not recognized until at least one of the parties has
performed under the agreement.

C. A forward contract that is within the scope of PFRS 9 is recognized as an asset or a liability on the
commitment date, instead of on the date on which settlement takes place.

d. Option contracts that are within the scope of PFRS 9 are recognized as assets or liabilities when the
holder or writer becomes a party to the contract.

e. Planned future transactions, no matter how likely, are not assets and liabilities because the entity has
not become a party to a contract.

Also, as a consequence of the same recognition principle, an entity recognizes all of its contractual rights
and obligations under derivatives in its statement of financial position as assets and liabilities,
respectively, except for derivatives that prevent a transfer of financial assets from being accounted for as
a sale.

10. How should an entity classify financial assets and financial liabilities?

The classifications of financial assets and financial liabilities depend on how they are to be subsequently
measured. An entity shall classify financial assets as subsequently measured at amortized cost, fair value
through other comprehensive income (FVOCI) or fair value through profit or loss (FVPL) on the basis of
both:

a. the entity's business model for managing the financial assets and b. the contractual cash flow
characteristics of the financial asset.

On the other hand, an entity shall classify all financial liabilities as subsequently measured at amortized
cost subject to some exceptions.

Financial assets

11. When shall an entity classify a financial asset as being subsequently measured at

amortized cost? A financial asset shall be measured at amortized cost if both of the following conditions
are met:

a. the financial asset is held within a business model whose objective is to hold financial assets in order
to collect contractual cash flows; and

b. the contractual terms of the financial asset give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding.

12. When shall an entity classify a financial asset as being measured at fair value through other
comprehensive income?

A financial asset shall be measured at fair value through other comprehensive income if both of the
following conditions are met:

a. the financial asset is held within a business model whose objective is achieved by both collecting
contractual cash flows and selling financial assets; and

b. the contractual terms of the financial asset give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding.

13. When shall an entity classify a financial asset as being measured at fair value through profit or loss?

A financial asset shall be measured at fair value through profit or loss unless it is measured at amortized
cost or at fair value through other comprehensive income. Stated differently, a financial asset can only be
measured at fair value through profit or loss if it does not meet the conditions for the amortized cost or
the fair value through other comprehensive income classification.

Additionally, if an entity uses a credit derivative that is measured at fair value through profit or loss to
manage the credit risk of all, or a part of, a financial instrument (credit exposure) it may designate that
financial instrument to the extent that it is so managed
(either all or a proportion of it) as measured at fair value through profit or loss if: the name of the credit
exposure (for example, the borrower, or the holder of a loan. a. commitment) matches the reference
entity of the credit derivative ('name matching'); and

b. the seniority of the financial instrument matches that of the instruments that can be delivered in
accordance with the credit derivative.

14. Is it possible for a financial asset that do not meet the requirements for the fair value through other
comprehensive income classification to be still classified as a financial asset measured at fair value
through other comprehensive income?

Yes. An entity may make an irrevocable election at initial recognition for particular investments in equity
instruments that would otherwise be measured at fair value through profit or loss to present subsequent
changes in fair value in other comprehensive income.

There are three things to take note when making such irrevocable election. First is that the election to
measure the financial asset at fair value through other comprehensive income is irrevocable. Second is
that the election is to be done at initial recognition. Third would be that the option is available only for
equity instruments.

15. Is it possible for a financial asset that has met the conditions of the other classification to be
classified as a financial asset as measured at fair value through profit or loss?

Yes. An entity may, at initial recognition, irrevocably designate a financial asset as measured at fair value
through profit or loss if doing so eliminates or significantly reduces a measurement or recognition
inconsistency (sometimes referred to as an accounting mismatch') that would otherwise arise from
measuring assets or liabilities or recognizing the gains and losses on them on different bases.

Financial liabilities

16.

What are the exceptions to the amortized cost classification of financial liabilities? The following financial
liabilities covered by PFRS 9 are not to be subsequently measured

at amortized cost:

a. financial liabilities irrevocably designated to be subsequently measured at fair value through profit or
loss;

b. financial liabilities that arise when a transfer of a financial asset does not qualify for

derecognition or when the continuing involvement approach applies;

C. financial guarantee contracts;

d. commitments to provide a loan at a below-market interest rate; and

e. contingent consideration recognized by an acquirer in a business combination to which PFRS 3 applies.

17. When shall an entity classify a financial liability as subsequently measured at fair value through profit
or loss instead of the general amortized cost classification?
As stated above, an exception to the encompassing amortized cost classification of financial liabilities is
when they are classified as being measured at fair value through profit or loss. It can happen when an
entity, at initial recognition, irrevocably designates the financial liabilities as measured at fair value
through profit or loss.

An entity is permitted to make such irrevocable designation under two instances. Firstly, it is permitted
when what is involved is a hybrid contract that contains one or more embedded derivatives and the host
is not an asset within the scope of PFRS 9.

Secondly, the fair value through profit or loss classification is likewise allowed when doing so results in
more relevant information, because either it eliminates or significantly reduces a measurement or
recognition inconsistency (accounting mismatch) that would otherwise arise from measuring assets or
liabilities or recognizing the gains and losses on them on different bases; or a group of financial liabilities
or financial assets and financial liabilities is managed and its performance is evaluated on a fair value
basis, in accordance with a documented risk management or investment strategy, and information about
the group is provided internally on that basis to the entity's key management personnel

18. What other guidance does PFRS 9 provide for a group of financial liabilities (and financial assets) that
are managed and evaluated on a fair value basis?

An entity may choose to irrevocably designate the group as financial liabilities at fair value through profit
or loss if measuring the group in such a way results in more relevant information. The focus in this
instance is on the way the entity manages and evaluates performance, instead of on the nature of its
financial instruments. An entity that designates financial liabilities as at fair value through profit or loss
on the basis of this condition shall so designate all eligible financial liabilities that are managed and
evaluated together in accordance with a documented policy of asset and liability management.

Documentation of the entity's strategy need not be extensive but should be sufficient to

demonstrate compliance with the fair value through profit or loss classification requirement

for financial liabilities. Such documentation is not required for each individual item, but may

be on a portfolio basis. For example, if the performance management system for a department clearly
demonstrates that its performance is evaluated on this basis, no further documentation is required to
demonstrate compliance with the fair value classification requirement.

Embedded derivatives

19. What is an embedded derivative?

An embedded derivative is a component of a hybrid contract that also includes a non- derivative host-
with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-
alone derivative. An embedded derivative causes some or all of the cash flows that otherwise would be
required by the contract to be modified according to a specified interest rate, financial instrument price,
commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other
variable, provided in the case of a non-financial variable that the variable is not specific to a party to the
contract.
A derivative that is attached to a financial instrument but is contractually transferable independently of
that instrument, or has a different counterparty, is not an embedded derivative, but a separate financial
instrument.

Sure. Here is a note summarizing IFRS 9:

Objective and Scope

PFRS 9 aims to provide relevant and useful information to users of financial statements for their
assessment of the amounts, timing, and uncertainty of an entity's future cash flows.

PFRS 9 applies to all entities, with some exceptions.

PFRS 9 replaces PAS 39 in its entirety.

Recognition and Classification

An entity recognizes a financial asset or a financial liability when it becomes party to the contractual
provisions of the instrument.

The classification of financial assets depends on the entity's business model for managing the financial
assets and the contractual cash flow characteristics of the financial asset.

All financial liabilities are classified as subsequently measured at amortized cost, with some exceptions.

Measurement

Financial assets are measured at amortized cost, fair value through other comprehensive income
(FVOCI), or fair value through profit or loss (FVPL).

Financial liabilities are measured at amortized cost, with some exceptions.

Impairment

An entity assesses impairment on an individual basis for each financial asset that is not classified as
FVPL.
An entity reverses an impairment loss when the conditions for impairment are no longer met.

Derecognition

An entity derecognizes a financial asset when it has transferred the financial asset to another party and
has no longer any obligations or rights related to the transferred asset.

An entity derecognizes a financial liability when it extinguishes the liability.

Disclosures

An entity discloses information that is relevant to users of its financial statements in understanding its
financial position, financial performance, and cash flows.

Effective Date

PFRS 9 is effective for annual periods beginning on or after January 1, 2018.

Chatgpt

Objective of PFRS 9:

The primary goal is to establish principles for the financial reporting of financial assets and liabilities.

Aims to provide relevant and useful information for users to assess an entity's future cash flows.

Compatibility with Other Standards:

No conflict exists between PFRS 9 and PAS 32 or other standards.

PAS 32 deals with presentation, while PFRS 9 and PAS 39 cover recognition, measurement, and disclosure
of financial instruments.

PFRS 9 replaces PAS 39 entirely.

Scope of Application:

PFRS 9 generally applies to all entities and financial instruments.

Exceptions include certain interests, leases under PFRS 16, employee benefit plans under IAS 19, etc.

Exceptions to Exceptions:
Some entities or instruments exempted from PFRS 9's blanket applicability may still fall under its scope
based on specific standards.

Forward Contracts under PFRS 9:

A forward contract not covered by PFRS 9 should have a term not exceeding the reasonable period
needed for approvals and transaction completion.

Exceptions to Exemptions:

Instances where PFRS 9 applies to certain exempted entities or instruments based on their respective
standards.

Recognition and Classification: Initial Recognition:

Recognition of Financial Assets/Liabilities:

Recognize when an entity becomes a party to contractual provisions.

Examples include unconditional receivables, payables, firm commitment outcomes, and forward
contracts.

Classification of Financial Assets/Liabilities:

Classifications depend on subsequent measurement methods, considering business models and

contractual cash flow characteristics.

Financial Assets: 9. Amortized Cost Classification:

Criteria for a financial asset to be measured at amortized cost: held within a business model for
collecting cash flows, and contractual terms generating principal and interest.

Fair Value Through Other Comprehensive Income (FVOCI) Classification:

Criteria include a business model for both collecting cash flows and selling financial assets, with specified
cash flows of principal and interest.

Fair Value Through Profit or Loss (FVPL) Classification:

Financial assets not meeting amortized cost or FVOCI conditions are measured at fair value through
profit or loss.

Irrevocable Election for FVPL:

Equity instruments may be irrevocably elected at initial recognition for fair value through other
comprehensive income.

Irrevocable Designation for FVPL:

Entities may designate a financial asset at FVPL if it eliminates or reduces an accounting mismatch.

Financial Liabilities: 14. Exceptions to Amortized Cost: - Financial liabilities not subsequently measured at
amortized cost include those irrevocably designated at FVPL, arising from non-qualifying transfers,
financial guarantee contracts, etc.
Fair Value Through Profit or Loss Classification:

Irrevocable designation for fair value through profit or loss at initial recognition, applicable to hybrid
contracts or for more relevant information.

Group of Financial Liabilities at Fair Value:

Entities may irrevocably designate a group as financial liabilities at fair value through profit or loss for
more relevant information.

Embedded Derivatives: 17. Embedded Derivatives Definition: - A component of a hybrid contract causing
cash flows to vary similarly to a stand-alone derivative.

Comprehensive Note on PFRS 9: Financial Instruments

Objective and Scope

1. Objective of PFRS 9: The primary objective of PFRS 9 is to establish

principles for the financial reporting of financial assets and financial
liabilities. The aim is to provide relevant and useful information to
users of financial statements for assessing an entity's future cash flows,
including amounts, timing, and uncertainty.

2. Relationship with Other Standards: There is no conflict between

the objectives of PFRS 9 and other standards such as PAS 32. While
PAS 32 deals with presentation for financial instruments, PFRS 9
focuses on recognition, measurement, impairment, derecognition, and
hedge accounting. PFRS 9 has replaced PAS 39 in its entirety.

3. Scope of Application: PFRS 9 applies to all entities for all types of

financial instruments, with exceptions. Exceptions include interests in
subsidiaries, associates, and joint ventures accounted for under
specific standards, rights and obligations under leases covered by
PFRS 16, and certain financial instruments specified in the standard.
4. Exceptions to the Exceptions: There are instances where entities
exempted from PFRS 9's blanket applicability may still apply it. For
example, certain interests in subsidiaries, associates, and joint ventures
may follow PFRS 9 based on their respective standards. Also, while
loan commitments are generally exempt, their impairment is subject to
PFRS 9.

5. Forward Contracts Conditions: For a forward contract not to be

covered by PFRS 9, its term should not exceed a reasonable period
necessary for required approvals and transaction completion.

6. Types of Loan Commitments Covered: Certain loan commitments

fall under PFRS 9, including those designated as financial liabilities at
fair value through profit or loss, those settled net in cash or by issuing
another financial instrument, and commitments with below-market
interest rates.

7. Share-Based Payment Transactions: Some share-based payment

transactions fall under PFRS 9 instead of PFRS 2, especially contracts
settled net in cash or another financial instrument, except those
irrevocably designated as measured at fair value through profit or loss.

Recognition and Classification

8. Initial Recognition: Entities recognize financial assets or liabilities

in their statement of financial position when they become a party to
the contractual provisions of the instrument. This includes
unconditional receivables/payables, firm commitments, and
derivatives.

9. Classification of Financial Assets: Financial assets are classified as

amortized cost, fair value through other comprehensive income
(FVOCI), or fair value through profit or loss (FVPL) based on the
entity's business model and contractual cash flow characteristics.

10. Classification of Financial Liabilities: Financial liabilities are

generally measured at amortized cost, with exceptions. Irrevocable
designations can classify them as fair value through profit or loss in
specific circumstances.

11. Exceptions to Amortized Cost for Financial Liabilities: Certain

financial liabilities, such as those irrevocably designated at fair value
through profit or loss, financial guarantee contracts, and commitments
to provide loans at below-market rates, are exceptions to amortized
cost.

12. Irrevocable Election for Equity Instruments: Irrevocable

elections at initial recognition allow certain equity instruments to be
measured at fair value through other comprehensive income instead
of fair value through profit or loss.

13. Designation at Fair Value through Profit or Loss: Financial

liabilities may be designated at fair value through profit or loss if it
eliminates or significantly reduces a measurement or recognition
inconsistency and aligns with risk management strategies.

Embedded Derivatives

14. Embedded Derivatives: An embedded derivative is a component

of a hybrid contract that behaves like a stand-alone derivative, causing
cash flows to be modified based on specified variables. It may be
transferable independently