Which IFRSs deal with Financial Instruments ?

Appropriate answer : IFRS7, IFRS9, IAS32, IAS39

IFRS7, IFRS9, IAS32, IAS39

 IFRS9 Financial Instruments (replacement of IAS39)

The International Accounting Standards Board (IASB) completed the final element of its comprehensive response to the financial crisis with the publication of IFRS9 Financial Instruments in July2014. The package of improvements introduced by IFRS9 includes a logical model for classification and measurement, a single, forward-looking ‘expected loss’ impairment model and a substantially-reformed approach to hedge accounting.

The IASB has previously published versions of IFRS9 that introduced new classification and measurement requirements (in2009 and2010) and a new hedge accounting model (in2013). The July2014 publication represents the final version of the Standard, replaces earlier versions of IFRS9 and completes the IASB’s project to replace IAS39 Financial Instruments: Recognition and Measurement.

IFRS9 is effective for annual periods beginning on or after1 January2018. More information about IFRS9 can be found in the press release for the Standard. 

Additionally, you can view a Project Summary providing an overview of the new Standard.

ProjectStatus

Phase1: Classification and measurement

Classification determines how financial assets and financial liabilities are accounted for in financial statements and, in particular, how they are measured on an ongoing basis. IFRS9 introduces a logical approach for the classification of financial assets driven by cash flow characteristics and the business model in which an asset is held. This single, principle-based approach replaces existing rule-based requirements that are complex and difficult to apply. The new model also results in a single impairment model being applied to all financial instruments removing a source of complexity associated with previous accounting requirements.

Phase2: Impairment

During the financial crisis, the delayed recognition of credit losses on loans (and other financial instruments) was identifed as a weakness in existing accounting standards. As part of IFRS9 the IASB has introduced a new, expected loss impairment model that will require more timely recognition of expected credit losses. Specifically, the new Standard requires entities to account for expected credit losses from when financial instruments are first recognised and it lowers the threshold for recognition of full lifetime expected losses.

The IASB has already announced its intention to create a transition resource group to support stakeholders in the transition to the new impairment requirements.

Phase3:

Hedge accounting

IFRS9 introduces a substantially-reformed model for hedge accounting with enhanced disclosures about risk management activity. The new model represents a substantial overhaul of hedge accounting that aligns the accounting treatment with risk management activities, enabling entities to better reflect these activities in their financial statements. In addition, as a result of these changes, users of the financial statements will be provided with better information about risk management and the effect of hedge accounting on the financial statements.

IAS32: Financial instruments: Presentation

IAS39: Recognition and measurement of Financial instrument

IFRS7: Disclosure of Financial Instruments

IFRS9: Financial Instruments

IAS32 relates to presentation of financial instruments, particularly as to the classification of such instruments into financial assets, financial liabilities and equity instruments. The standard also provides guidance on the classification of related interest, dividends and gains or losses, and when financial assets and financial liabilities can be offset.

IAS39 relates to Recognition and Measurement of financial instruments which outlines the requirements for the recognition and measurement of financial assets, financial liabilities, and some contracts to buy or sell non-financial items. IAS39 will be replaced by IFRS9 Financial Instruments for annual periods beginning on or after1 January2018.

IFRS7 requires disclosure of information about the significance of financial instruments to an entity, and the nature and extent of risks arising from those financial instruments, both in qualitative and quantitative terms. Specific disclosures are required in relation to transferred financial assets and a number of other matters.

 IFRS9 relates to the replacement of IAS39 standard which is not yet effective. There are model few key changes for classification and measurement, a single, forward-looking ‘expected loss’ impairment model and a substantially-reformed approach to hedge accounting. Latest model has been published in2014.

IFRS9 is effective for annual periods beginning on or after1 January2018.

IFRS9 deals with financial instruments. The International Accounting Standards Board (IASB) issued IFRS9, Financial Instruments, in November2009. This is the first installment of a phased replacement of the existing standard IAS39, Financial Instruments.In July2014, the IASB issued the completed version of IFRS9 Financial Instruments which will replace IAS39 Financial Instruments: Recognition and Measurement. IFRS9 (2014) provides revised guidance on the classification and measurement of financial assets, an expected credit loss model for calculating impairment, and the general hedge accounting requirements that were originally published as a part of IFRS9 (2013).