IASB finalises IFRS 9

• IFRS 9 Financial Instruments is now complete. It amends classification and measurement of financial assets and introduces a new expected loss impairment model.
• A new measurement category of fair value through other comprehensive income (FVTOCI) will apply for debt instruments held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets.
• The Standard has more guidance on how sales of financial assets arising other than as a result of credit deterioration should impact the business model assessment.
• Guidance is provided as to how debt instruments are classified when the time value of money element is modified, e.g. interest rate resets every month to a one-year rate. Also the criteria for assessing prepayment features are modified.
• A new impairment model based on expected credit losses will apply to debt instruments measured at amortised cost or FVTOCI, lease receivables, contract assets and certain written loan commitments and financial guarantee contracts.
• The loan loss allowance will be for either 12-month expected losses or lifetime expected losses. The latter applies if credit risk has increased significantly since initial recognition of the financial instrument. A different approach applies for purchased or originated credit-impaired financial assets (e.g. distressed debt).
• The Standard adds detailed guidance on impairment-related presentation and disclosure.
• IFRS 9 is effective for annual periods beginning on or after 1 January 2018 and shall be applied retrospectively subject to certain exceptions.

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