FINANCIAL

INSTRUMENTS
IFRS 9
BACKGROUND
■ Came into effect on 1 January 2018
■ Replaces IAS 39 - Financial Instruments – Recognition and
Measurement
■ Aims to deal with IAS 39 shortcomings, e.g. late recognition
of credit losses from loans and receivables
■ Affects not only financial service entities
Scope
1. Classification and measurement of financial assets and
liabilities IAS 32 defines financial assets and
liabilities
2. Derecognition
3. Impairment
4. Hedge accounting (OPTIONAL)
Classification and measurement of financial
assets
I. Initial recognition
– Entity becomes party to the contractual provisions of the
financial instrument
II. Initial measurement
– Fair value +/- transaction costs,
FVPL - Theexcept
asset is measured at fair value.
■ instruments held at fairChanges in fair value
value through profitare
orrecognized
loss in
profit and loss as they arise
– FVPL if certain conditions are met (avoid a mismatch or
provide more information)
III. Subsequent measurement
■ Asset may be reclassified and measured at : at the amount recognized at
The asset is measured
initial recognition minus principal repayments, plus
a. Armotised cost or minus the cumulative amortization of any
b. Fair value through other comprehensive income
difference between that (FVOCI)
initial amount and the
c. Fair value through profit ormaturity amount, and any loss allowance
loss (FVPL)
■ The measurement bases used depends on two fundamental
test:
– Business model test - The objective of the entity’s business
model is to hold assets only to collect cash flows, or to collect cash
flows and to sell
– Characteristics of contractual cash flows (SPPI) test - The
contractual cash flows of an asset give rise to payments on
specified dates that are solely payments of principal and interest
(“SPPI”) on the principal amount outstanding
Contractual cash NO FVOCI used for
flow SPPI equity instrument
YES

NO BM : contractual
BM : contractual cash flow and for
cash flows only sale
YES YES
NO YES
NO
Irrevocable FVPL YES Irrevocable FVPL

NO YES
NO

Armotised cost FVPL FVOCI