Financial Instruments - Australian Accounting …

1 AASB Standard AASB 9 December 2010 Financial Instruments AASB 9 2 COPYRIGHT Obtaining a Copy of this Accounting Standard This Standard is available on the AASB website: Alternatively, printed copies of this Standard are available for purchase by contacting: The Customer Service Officer Australian Accounting Standards Board Level 7 600 Bourke Street Melbourne Victoria AUSTRALIA Postal address: PO Box 204 Collins Street West Victoria 8007 AUSTRALIA Phone: (03) 9617 7637 Fax: (03) 9617 7608 E-mail: Website: Other Enquiries Phone: (03) 9617 7600 Fax: (03) 9617 7608 E-mail: COPYRIGHT Commonwealth of Australia 2010 This AASB Standard contains IFRS Foundation copyright material. Reproduction within Australia 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 enquiries concerning reproduction and rights for commercial purposes within Australia should be addressed to The Director of Finance and Administration, Australian Accounting Standards Board, PO Box 204, Collins Street West, Victoria 8007.

2 All existing rights in this material are reserved outside Australia. Reproduction outside Australia in unaltered form (retaining this notice) is permitted for personal and non-commercial use only. Further information and requests for authorisation to reproduce for commercial purposes outside Australia should be addressed to the IFRS Foundation at ISSN 1036-4803 AASB 9 3 CONTENTS CONTENTS PREFACE COMPARISON WITH IFRS 9 Accounting STANDARD AASB 9 Financial Instruments Paragraphs Objective and application Scope Recognition and derecognition Initial recognition Regular way purchase or sale of Financial assets Derecognition of Financial assets Transfers that qualify for derecognition Transfers that do not qualify for derecognition Continuing involvement in transferred assets All transfers Derecognition of Financial liabilities Classification Classification of Financial assets Option to designate a Financial asset at fair value through profit or loss Classification of Financial liabilities Option to designate a Financial liability at fair value through profit or loss

3 Embedded derivatives Hybrid contracts with Financial asset hosts Other hybrid contracts Reclassification Measurement Initial measurement Subsequent measurement of Financial assets Subsequent measurement of Financial liabilities Fair value measurement Reclassification of Financial assets Gains and losses AASB 9 4 CONTENTS Investments in equity Instruments Liabilities designated as at fair value through profit or loss Effective date and transition Transition Entities that have applied early AASB 9 issued in 2009 Appendices: A. Defined Terms Page 33 B. Application Guidance Page 36 DELETED IFRS 9 TEXT Page 96 IMPLEMENTATION GUIDANCE ON IFRS 9 (available on the AASB website) BASIS FOR CONCLUSIONS ON IFRS 9 (available on the AASB website) Australian Accounting Standard AASB 9 Financial Instruments is set out in paragraphs and Appendices A and B. All the paragraphs have equal authority.

4 Paragraphs in bold type state the main principles. AASB 9 is to be read in the context of other Australian Accounting Standards, including AASB 1048 Interpretation of Standards, which identifies the Australian Accounting Interpretations. In the absence of explicit guidance, AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying Accounting policies. AASB 9 5 PREFACE PREFACE Introduction The Australian Accounting Standards Board (AASB) makes Australian Accounting Standards, including Interpretations, to be applied by: (a) entities required by the Corporations Act 2001 to prepare Financial reports; (b) governments in preparing Financial statements for the whole of government and the General Government Sector (GGS); and (c) entities in the private or public for-profit or not-for-profit sectors that are reporting entities or that prepare general purpose Financial statements. When appropriate, Australian Accounting Standards incorporate International Financial Reporting Standards (IFRSs), including Interpretations, issued by the International Accounting Standards Board (IASB), with the addition of paragraphs on the applicability of each Standard in the Australian environment.

5 Australian Accounting Standards also include requirements that are specific to Australian entities. These requirements may be located in Australian Accounting Standards that incorporate IFRSs or in other Australian Accounting Standards. In most instances, these requirements are either restricted to the not-for-profit or public sectors or include additional disclosures that address domestic, regulatory or other issues. In developing requirements for public sector entities, the AASB considers the requirements of International Public Sector Accounting Standards (IPSASs), as issued by the International Public Sector Accounting Standards Board (IPSASB) of the International Federation of Accountants. AASB 1053 Application of Tiers of Australian Accounting Standards establishes a differential reporting framework consisting of two tiers of reporting requirements for preparing general purpose Financial statements: (a) Tier 1: Australian Accounting Standards; and (b) Tier 2: Australian Accounting Standards Reduced Disclosure Requirements.

6 Private sector for-profit entities complying with Tier 1 requirements will simultaneously comply with IFRSs. Many other entities complying with Tier 1 will also simultaneously comply with IFRSs. AASB 9 6 PREFACE Differences between this Standard, AASB 9 (issued in 2009) and AASB 139 This revised AASB 9 incorporates the IASB s completed work on Phase 1 of its project to replace IAS 39 Financial Instruments : Recognition and Measurement (AASB 139 Financial Instruments : Recognition and Measurement) on the classification and measurement of Financial assets and Financial liabilities. In addition, the IASB completed its project on derecognition of Financial Instruments . This Standard includes requirements for the classification and measurement of Financial Instruments , as well as recognition and derecognition requirements for Financial Instruments . AASB 9 (issued in 2009) only included requirements for the classification and measurement of Financial assets resulting from the first part of Phase 1 of the IASB s project to replace IAS 39 (AASB 139).

7 The main changes in this Standard compared with AASB 139 are described below. (a) Financial assets are classified based on: (i) the objective of the entity s business model for managing the Financial assets; and (ii) the characteristics of the contractual cash flows. This replaces the categories of Financial assets in AASB 139, each of which had its own classification criteria. Application guidance has been included in AASB 9 on the conditions necessary for a Financial asset to be measured at amortised cost. (b) AASB 9 allows an irrevocable election on initial recognition to present gains and losses on investments in equity Instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment are recognised in profit or loss and there is no impairment or recycling on disposal of the instrument. (c) Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases.

8 AASB 9 7 PREFACE (d) Hybrid contracts with Financial asset hosts are classified and measured in their entirety in accordance with the classification criteria. (The treatment of embedded derivatives in respect of Financial liability hosts has not changed.) (e) Investments in unquoted equity Instruments (and contracts on those investments that must be settled by delivery of the unquoted equity instrument) must be measured at fair value. However, in limited circumstances, cost may be an appropriate estimate of fair value. (f) Investments in contractually linked Instruments that create concentrations of credit risk (tranches) are classified and measured using a look through approach. Such an approach looks to the underlying assets generating cash flows and assesses the cash flows against the classification criteria (discussed in (a) above) to determine whether the investment is measured at fair value or amortised cost. (g) Financial assets are reclassified only in the rare circumstances when there is a relevant change in the entity s business model.

9 (h) The portion of a change of fair value relating to the entity s own credit risk for Financial liabilities measured at fair value utilising the fair value option is presented in other comprehensive income, except when that would create an Accounting mismatch. If such a mismatch would be created or enlarged, the entity is required to present all changes in fair value (including the effects of changes in the credit risk of the liability) in profit or loss. AASB 9 8 COMPARISON COMPARISON WITH IFRS 9 AASB 9 and IFRS 9 AASB 9 Financial Instruments incorporates IFRS 9 Financial Instruments issued by the International Accounting Standards Board (IASB). Paragraphs that have been added to this Standard (and do not appear in the text of IFRS 9) are identified with the prefix Aus , followed by decimal numbering. Paragraphs that apply only to not-for-profit entities begin by identifying their limited applicability. Compliance with IFRS 9 Entities that comply with AASB 9 will simultaneously be in compliance with IFRS 9.

10 AASB 9 9 STANDARD Accounting STANDARD AASB 9 The Australian Accounting Standards Board makes Accounting Standard AASB 9 Financial Instruments under section 334 of the Corporations Act 2001. Kevin M. Stevenson Dated 6 December 2010 Chair AASB Accounting STANDARD AASB 9 Financial Instruments Chapter 1 Objective and application The objective of this Standard is to establish principles for the Financial reporting of Financial assets and Financial liabilities that will present relevant and useful information to users of Financial statements for their assessment of the amounts, timing and uncertainty of an entity s future cash flows. This Standard applies to: (a) each entity that is required to prepare Financial reports in accordance with Part of the Corporations Act and that is a reporting entity; (b) general purpose Financial statements of each other reporting entity; and (c) Financial statements that are, or are held out to be, general purpose Financial statements.