IFRS 9 - Accounting for Financial Instruments intends to improve the disclosure of amounts, timing, and uncertainty of entities’ future cash flows by applying a forward-looking approach to these disclosures. IFRS 9 was originally published on July 24, 2014 by the IASB in an effort to replace IAS 39 Financial Instruments: Recognition and Measurement. After several amendments, the mandatory effective date has been set to January 1st 2018.
The goal? To give stakeholders a better understanding of the company’s financial position, something needed in the wake of the 2008 financial crisis.
IFRS 9 focuses on the following three topics:
- Classification and measurement:
SPPI test on contractual cash flows must verify that cash flows from the instrument consists of Solely Payments of Principal and Interest (SPPI).
Business model assessments conducted and reported on to determine if a financial instrument is held only to collect contractual cash flows or whether it is for sale.
- Impairment: Moving from an impairment model based on incurred loss to a new one based on expected loss with a forward-looking approach:
- Hedge accounting: The objective of IFRS 9 is to better align accounting and risk management, including the hedging of non-financial risk exposures.