Financial Instruments

1 Financial Instruments Financial Instruments HKFRS 9 Revised December 2021 August 2022 Hong Kong Financial Reporting Standard 9 Financial Instruments Copyright 2 HKFRS 9 (2022) COPYRIGHT Copyright 2022 Hong Kong Institute of Certified Public Accountants This Hong Kong Financial Reporting Standard contains IFRS Foundation copyright material. Reproduction within Hong Kong in unaltered form (retaining this notice) is permitted for personal and non-commercial use subject to the inclusion of an acknowledgment of the source. Requests and inquiries concerning reproduction and rights for commercial purposes within Hong Kong should be addressed to Hong Kong Institute of Certified Public Accountants, 37/F.

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3 Contents from paragraph INTRODUCTION IN1 HONG KONG Financial REPORTING STANDARD 9 Financial Instruments CHAPTERS 1 OBJECTIVE 2 SCOPE 3 RECOGNITION AND DERECOGNITION Initial recognition Derecognition of Financial assets Derecognition of Financial liabilities 4 CLASSIFICATION Classification of Financial assets Classification of Financial liabilities Embedded derivatives Reclassification 5 MEASUREMENT Initial measurement Subsequent measurement of Financial assets Subsequent measurement of Financial liabilities Amortised cost measurement Impairment Reclassification of Financial assets Gains and losses 6 HEDGE ACCOUNTING Objective and scope of hedge accounting Hedging Instruments Hedged items Qualifying criteria for hedge accounting Accounting for qualifying hedging relationships Financial Instruments Copyright 4 HKFRS 9 (2022)

4 Hedges of a group of items Option to designate a credit exposure as measured at fair value through profit or loss Temporary exceptions from applying specific hedge accounting requirements Additional temporary exceptions arising from interest rate benchmark reform 7 EFFECTIVE DATE AND TRANSITION Effective date Transition Withdrawal of IFRIC 9, IFRS 9 (2009), IFRS 9 (2010) and IFRS 9 (2013) APPENDICES A Defined terms B Application guidance C Amendments to other Standards BASIS FOR CONCLUSIONS DISSENTING OPINIONS APPENDICES TO THE BASIS FOR CONCLUSIONS A Previous dissenting opinions B Amendments to the Basis for Conclusions on other Standards ILLUSTRATIVE EXAMPLES GUIDANCE ON implementing IFRS 9 Financial Instruments APPENDIX Amendments to the guidance on other Standards Hong Kong Financial Reporting Standard 9 Financial Instruments (HKFRS 9) is set out in paragraphs and Appendices A C.

5 All the paragraphs have equal authority. Paragraphs in bold type state the main principles. Terms defined in Appendix A are in italics the first time they appear in the HKFRS. Definitions of other terms are given in the Glossary for Hong Kong Financial Reporting Standards. HKFRS 9 should be read in the context of its objective and the Basis for Conclusions, the Preface to Hong Kong Financial Reporting Standards and the Conceptual Framework for Financial Reporting. HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance.

6 Financial Instruments Copyright 5 HKFRS 9 (2022) Introduction Reasons for issuing HKFRS 9 IN1 HKFRS 9 Financial Instruments sets out the requirements for recognising and measuring Financial assets, Financial liabilities and some contracts to buy or sell non- Financial items. This Standard replaces HKAS 39 Financial Instruments : Recognition and Measurement. IN2 Many users of Financial statements and other interested parties have expressed that the requirements in HKAS 39 were difficult to understand, apply and interpret. They urged the development of a new Standard for the Financial reporting of Financial Instruments that was principle-based and less complex.

7 Although HKAS 39 has been amended several times to clarify requirements, add guidance and eliminate internal inconsistencies, it had not previously undertaken a fundamental reconsideration of the reporting for Financial Instruments . IN3 In 2005 the International Accounting Standards Board (IASB) and the US national standard-setter, the Financial Accounting Standards Board (FASB), began working towards a long-term objective of improving and simplifying the reporting for Financial Instruments . This work resulted in the publication of the Discussion Paper, Reducing Complexity in Reporting Financial Instruments , in March 2008.

8 Focusing on the measurement of Financial Instruments and hedge accounting, the Discussion Paper identified several possible approaches for improving and simplifying the accounting for Financial Instruments . The responses to the Discussion Paper indicated support for a significant change in the requirements for reporting Financial Instruments . In November 2008 the IASB added this project to its active agenda. IN4 In April 2009, in response to the feedback received on its work responding to the global Financial crisis, and following the conclusions of the G20 leaders and the recommendations of international bodies such as the Financial Stability Board, the IASB announced an accelerated timetable for replacing IAS 39.

9 Approach to replacing HKAS 39 IN5 It is intended that HKFRS 9 would replace HKAS 39 in its entirety. However, in response to requests from interested parties that the accounting for Financial Instruments be improved quickly, the project to replace HKAS 39 is divided into three main phases. As each phase is completed, it created chapters in HKFRS 9 that replaced the corresponding requirements in HKAS 39. IN6 The three main phases of the project to replace HKAS 39 were: (a) Phase 1: classification and measurement of Financial assets and Financial liabilities. In November 2009 the chapters of HKFRS 9 relating to the classification and measurement of Financial assets were issued.

10 Those chapters require Financial assets to be classified on the basis of the business model within which they are held and their contractual cash flow characteristics. In November 2010 the requirements related to the classification and measurement of Financial liabilities were added. Those additional requirements are described further in paragraph IN7. In September 2014 limited amendments were made to the classification and measurement requirements in HKFRS 9 for Financial assets. Those amendments are described further in paragraph IN8. (b) Phase 2: impairment methodology. In September 2014 the impairment requirements related to the accounting for expected credit losses on an entity s Financial assets and commitments to extend credit were added.