The International Accounting Standards Board (IASB) has published an exposure draft proposing amendments to the classification and measurement requirements in IFRS 9 Financial Instruments.
The proposed amendments respond to feedback received from a post-implementation review of the classification and measurement requirements in IFRS 9, which concluded in December 2022. Feedback from that review indicated that most stakeholders believed those requirements achieved their intended purpose, whilst identifying specific areas for further enhancement or clarification. The exposure draft published today responds to these points.
IFRS 9 specifies how a company should classify and measure financial assets and financial liabilities. The Accounting Standard became effective in January 2018, introducing a new credit impairment model in light of the global financial crisis, and combining classification and measurement requirements, impairment and hedge accounting to replace and improve on IAS 39 Financial Instruments: Recognition and Measurement. In 2021, the IASB began a post-implementation review of the Standard, beginning with an assessment of the classification and measurement requirements of IFRS 9. Reviews of further aspects of IFRS 9 will follow.
In response to feedback received, the exposure draft’s proposed amendments include:
Clarifying the classification of financial assets with environmental, social and corporate governance (ESG) and similar features—ESG-linked features in loans could affect whether the loans are measured at amortised cost or fair value, and stakeholders asked how to determine whether such loans have cash flows that are solely payments of principal and interest. To resolve any potential diversity in practice, the proposed amendments clarify how the contractual cash flows on such loans should be assessed. They also look to ensure that investors are provided with useful information about the timing, amount and uncertainty of future cash flows.
Settlement of liabilities through electronic payment systems—stakeholders highlighted challenges about the potential outcomes of applying the derecognition requirements in IFRS 9 to the settlement of a financial asset or a financial liability via electronic cash transfers. The exposure draft proposes clarifications to how this should be accounted for. The IASB also decided to develop an accounting policy option to allow a company to derecognise a financial liability before it delivers cash on the settlement date when specified criteria are met.
Andreas Barckow, IASB Chair, said:
The recent post-implementation review of the requirements relating to classification and measurement in IFRS 9 indicated the Standard is performing as intended, whilst also addressing some specific areas for enhancement. This exposure draft sets out our proposals in response to this feedback.