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IFRS 9: Financial Instruments

IASB meeting summaries and observer notes


 IASB July 2012


 

The following topics were discussed at the IASB only meeting:

  1. presentation of interest revenue;
  2. the application of the proposed expected loss model to assets reclassified from fair value through profit or loss;
  3. disclosures specific to IFRSs; and
  4. transition.

Presentation of interest revenue

The IASB tentatively decided that:

  1. The accounting treatment of purchased credit-impaired financial assets should be extended to all financial assets subject to impairment accounting that are credit-impaired on initial recognition.
    Thirteen IASB members agreed and one IASB member was absent.
  2. For other financial assets subject to the general deterioration impairment model, an entity should present interest revenue calculated on the carrying amount net of the impairment allowance if the asset is credit-impaired as at the reporting date. This evaluation should be made at each reporting date and will be applicable for the following reporting period.
    Nine IASB members agreed and one IASB member was absent.
  3. Financial assets should be considered to be credit-impaired if there is objective evidence of the criteria in paragraphs 59(a)-(e) of IAS 39 Financial Instruments: Recognition and Measurement. The IASB noted that this will be a subset of financial assets with an impairment allowance measured at lifetime expected losses.
    Eight IASB members agreed and one IASB member was absent.

Assets reclassified from fair value through profit or loss

The IASB considered how the proposed impairment model would apply to financial assets that are reclassified from fair value through profit or loss to:

  1. amortised cost under IFRS 9 Financial Instruments; and
  2. fair value through other comprehensive income as per the Classification and Measurement project.

The IASB tentatively decided that the application of the proposed impairment model to a financial asset on the date of reclassification from fair value through profit or loss should be the same as a financial asset at initial recognition. Fourteen IASB members agreed and one IASB member was absent.

Disclosures

The IASB continued to discuss disclosure requirements for the proposed expected loss model. In addition to the decisions at the joint board meeting, the IASB tentatively decided to require that an entity disclose:

  1. qualitative information related to the discount rate elected;
  2. information regarding financial assets for which an impairment allowance of lifetime expected losses is required that have been modified at any time in their life;
  3. the gross carrying amount and related allowance, if any, of financial assets measured under the impairment model if a default has occurred;
  4. the balance of financial assets 90 days past due with an impairment allowance measured at 12 months' expected losses; and
  5. the amount of interest revenue and by how it is calculated (ie gross, net, credit-adjusted EIR).
    Fourteen IASB members agreed and one IASB member was absent.

Transition

The IASB tentatively decided that:

  1. an entity should be required to use the credit quality at initial recognition for existing financial assets when initially applying the new impairment model, unless obtaining such credit quality information requires undue cost or effort.
    Fourteen IASB members agreed and one IASB member was absent.
  2. if the credit quality at initial recognition is not used at the date of initial application (as per the relief outlined above), the transition provisions should require these financial assets to be evaluated only on the basis of the second criterion in the transfer notion: the likelihood that contractual cash flows may not be collected is at least reasonably possible.
    Eleven IASB members agreed and one IASB member was absent.
  3. the restatement of comparative periods should be permitted, but not required, if the information is available without the use of hindsight.
    Twelve IASB members agreed and one IASB member was absent.
  4. the disclosures in paragraph 28(f) of IAS 8 should not be required, but should be permitted, for prior periods if the information is available without the use of hindsight.
    Twelve IASB members agreed and one IASB member was absent.
  5. the disclosures in paragraph 28(f) of IAS 8 should be required for the current period.
    Fourteen IASB members agreed and one IASB member was absent.

Next steps

Subject to any further issues being identified, the IASB has taken all the technical decisions for developing an IASB Exposure Draft for the new impairment model.

During deliberations IASB members and IASB staff members have conducted ongoing outreach and have met with investors, preparers, auditors and regulators to discuss the boards' tentative decisions on the proposed expected loss model. As part of the IASB's due process, matters raised during these outreach meetings have been reported to the boards on a timely basis during their deliberations.

Before publishing the impairment proposals, the IASB will discuss the comment period and permission to ballot at future meetings.

Date: 7/20/2012