IFRS 9 Financial Instruments

1 IFRS 9 Financial InstrumentsIn April 2001 the International accounting Standards Board (Board) adoptedIAS 39 Financial Instruments : Recognition and Measurement, which had originally been issuedby the International accounting Standards Committee in March Board had always intended that IFRS 9 Financial Instruments would replace IAS 39 inits entirety. However, in response to requests from interested parties that the accountingfor Financial Instruments should be improved quickly, the Board divided its project toreplace IAS 39 into three main phases. As the Board completed each phase, it issuedchapters in IFRS 9 that replaced the corresponding requirements in IAS November 2009 the Board issued the chapters of IFRS 9 relating to the classificationand measurement of Financial assets. In October 2010 the Board added the requirementsrelated to the classification and measurement of Financial liabilities to IFRS 9.

2 Thisincludes requirements on embedded derivatives and how to account for changes in owncredit risk on Financial liabilities designated under the fair value October 2010 the Board also decided to carry forward unchanged from IAS 39 therequirements related to the derecognition of Financial assets and Financial of these changes, in October 2010 the Board restructured IFRS 9 and its Basis forConclusions. In December 2011 the Board deferred the mandatory effective date ofIFRS November 2013 the Board added a hedge accounting chapter. IFRS 9 permits an entityto choose as its accounting policy either to apply the hedge accounting requirements ofIFRS 9 or to continue to apply the hedge accounting requirements in IAS , although IFRS 9 is effective (with limited exceptions for entities that issueinsurance contracts and entities applying the IFRS for SMEs Standard), IAS 39, which nowcontains only its requirements for hedge accounting , also remains July 2014 the Board issued the completed version of IFRS 9.

3 The Board made limitedamendments to the classification and measurement requirements for Financial assets byaddressing a narrow range of application questions and by introducing a fair valuethrough other comprehensive income measurement category for particular simple debtinstruments. The Board also added the impairment requirements relating to theaccounting for an entity s expected credit losses on its Financial assets and commitmentsto extend credit. A new mandatory effective date was also May 2017 when IFRS 17 Insurance Contracts was issued, it amended the derecognitionrequirements in IFRS 9 by permitting an exemption for when an entity repurchases itsfinancial liability in specific October 2017 IFRS 9 was amended by Prepayment Features with NegativeCompensation (Amendments to IFRS 9). The amendments specify that particular financialassets with prepayment features that may result in reasonable negative compensation forthe early termination of such contracts are eligible to be measured at amortised cost or atfair value through other comprehensive 9 IFRS FoundationA365In September 2019 the Board amended IFRS 9 and IAS 39 by issuing Interest Rate BenchmarkReform to provide specific exceptions to hedge accounting requirements in IFRS 9 andIAS 39 for (a) highly probable requirement; (b) prospective assessments; (c) retrospectiveassessment (IAS 39 only); and (d) separately identifiable risk components.

4 Interest RateBenchmark Reform also amended IFRS 7 to add specific disclosure requirements for hedgingrelationships to which an entity applies the exceptions in IFRS 9 or IAS August 2020 the Board issued Interest Rate Benchmark Reform Phase 2 which amendedrequirements in IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 relating to: changes in the basis for determining contractual cash flows of Financial assets, Financial liabilities and lease liabilities; hedge accounting ; and Phase 2 amendments apply only to changes required by the interest rate benchmarkreform to Financial Instruments and hedging Standards have made minor consequential amendments to IFRS 9. Theyinclude Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters (Amendments toIFRS 1) (issued December 2010), IFRS 10 Consolidated Financial Statements (issued May2011), IFRS 11 Joint Arrangements (issued May 2011), IFRS 13 Fair Value Measurement (issuedMay 2011), IAS 19 Employee Benefits (issued June 2011), Annual Improvements to IFRSs2010 2012 Cycle (issued December 2013 ), IFRS 15 Revenue from Contracts withCustomers (issued May 2014), IFRS 16 Leases (issued January 2016), Amendments to Referencesto the Conceptual Framework in IFRS Standards (issued March 2018), Annual Improvements toIFRS Standards 2018 2020 (issued May 2020) and Amendments to IFRS 17 (issued June 2020).

5 IFRS 9A366 IFRS FoundationCONTENTS from paragraphINTERNATIONAL Financial REPORTING STANDARD 9 Financial INSTRUMENTSCHAPTERS1 RECOGNITION AND Initial Derecognition of Financial Derecognition of Financial Classification of Financial Classification of Financial Embedded Initial Subsequent measurement of Financial Subsequent measurement of Financial Amortised cost Reclassification of Financial Gains and hedge Objective and scope of hedge Hedging Hedged Qualifying criteria for hedge accounting for qualifying hedging Hedges of a group of Option to designate a credit exposure as measured at fair value throughprofit or Temporary exceptions from applying specific hedge Additional temporary exceptions arising from interest rate EFFECTIVE DATE AND Effective 9 IFRS Withdrawal of IFRIC 9, IFRS 9 (2009), IFRS 9 (2010) and IFRS 9 ( 2013 ) Defined termsB Application guidanceC Amendments to other StandardsAPPROVAL BY THE BOARD OF IFRS 9 ISSUED IN NOVEMBER 2009 APPROVAL BY THE BOARD OF THE REQUIREMENTS ADDED TO IFRS 9 INOCTOBER 2010 APPROVAL BY THE BOARD OF IFRS 9 Financial Instruments ISSUEDIN JULY 2014 APPROVAL BY THE BOARD OF AMENDMENTS TO IFRS 9.

6 Mandatory Effective Date IFRS 9 and transition Disclosures (Amendmentsto IFRS 9 (2009), IFRS 9 (2010) and IFRS 7) issued in December 2011 IFRS 9 Financial Instruments ( hedge accounting and Amendments toIFRS 9, IFRS 7 and IAS 39) issued in November 2013 Prepayment Features with Negative Compensation (Amendments to IFRS 9)issued in October 2017 Interest Rate Benchmark Reform issued in September 2019 Interest Rate Benchmark Reform Phase 2 issued in August 2020 FOR THE ACCOMPANYING GUIDANCE LISTED BELOW, SEE PART B OF THIS EDITIONILLUSTRATIVE EXAMPLESGUIDANCE ON IMPLEMENTING IFRS 9 Financial INSTRUMENTSAPPENDIXA mendments to the guidance on other StandardsFOR THE BASIS FOR CONCLUSIONS, SEE PART C OF THIS EDITIONBASIS FOR CONCLUSIONSDISSENTING OPINIONSAPPENDICES TO THE BASIS FOR CONCLUSIONSA Previous dissenting opinionsB Amendments to the Basis for Conclusions on other StandardsIFRS 9A368 IFRS FoundationInternational Financial Reporting Standard 9 Financial Instruments (IFRS 9) is set outin paragraphs and Appendices A C.

7 All the paragraphs have equal in bold type state the main principles. Terms defined in Appendix A arein italics the first time they appear in the IFRS. Definitions of other terms are given inthe Glossary for International Financial Reporting Standards. IFRS 9 should be read inthe context of its objective and the Basis for Conclusions, the Preface to IFRSS tandards and the Conceptual Framework for Financial Reporting. IAS 8 accounting Policies,Changes in accounting Estimates and Errors provides a basis for selecting and applyingaccounting policies in the absence of explicit 9 IFRS FoundationA369 International Financial Reporting Standard 9 Financial InstrumentsChapter 1 ObjectiveThe objective of this Standard is to establish principles for the financialreporting of Financial assets and Financial liabilities that will present relevant anduseful information to users of Financial statements for their assessment of theamounts, timing and uncertainty of an entity s future cash 2 ScopeThis Standard shall be applied by all entities to all types of financialinstruments except.

8 (a)those interests in subsidiaries, associates and joint ventures that areaccounted for in accordance with IFRS 10 Consolidated FinancialStatements, IAS 27 Separate Financial Statements or IAS 28 Investmentsin Associates and Joint Ventures. However, in some cases, IFRS 10,IAS 27 or IAS 28 require or permit an entity to account for aninterest in a subsidiary, associate or joint venture in accordancewith some or all of the requirements of this Standard. Entities shallalso apply this Standard to derivatives on an interest in a subsidiary,associate or joint venture unless the derivative meets the definitionof an equity instrument of the entity in IAS 32 Financial Instruments :Presentation.(b)rights and obligations under leases to which IFRS 16 Leases :(i)finance lease receivables (ie net investments in finance leases)and operating lease receivables recognised by a lessor aresubject to the derecognition and impairment requirementsof this Standard;(ii)lease liabilities recognised by a lessee are subject to thederecognition requirements in paragraph of thisStandard; and(iii)derivatives that are embedded in leases are subject to theembedded derivatives requirements of this Standard.

9 (c)employers rights and obligations under employee benefit plans, towhich IAS 19 Employee Benefits applies.(d) Financial Instruments issued by the entity that meet the definitionof an equity instrument in IAS 32 (including options and warrants)or that are required to be classified as an equity instrument inaccordance with paragraphs 16A and 16B or paragraphs 16 Cand 16D of IAS 32. However, the holder of such equity instrumentsshall apply this Standard to those Instruments , unless they meet theexception in (a). 9A370 IFRS Foundation(e)rights and obligations arising under an insurance contract asdefined in IFRS 17 Insurance Contracts, or an investment contractwith discretionary participation features within the scope ofIFRS 17. However, this Standard applies to:(i)derivatives that are embedded in contracts within the scopeof IFRS 17, if the derivatives are not themselves contractswithin the scope of IFRS 17.

10 (ii)investment components that are separated from contractswithin the scope of IFRS 17, if IFRS 17 requires suchseparation, unless the separated investment component is aninvestment contract with discretionary participationfeatures within the scope of IFRS 17.(iii)an issuer s rights and obligations under insurance contractsthat meet the definition of a Financial guarantee , if an issuer of Financial guarantee contracts haspreviously asserted explicitly that it regards such contractsas insurance contracts and has used accounting that isapplicable to insurance contracts, the issuer may elect toapply either this Standard or IFRS 17 to such financialguarantee contracts (see paragraphs ). The issuermay make that election contract by contract, but the electionfor each contract is irrevocable.(iv)an entity s rights and obligations that are financialinstruments arising under credit card contracts, or similarcontracts that provide credit or payment arrangements, thatan entity issues that meet the definition of an insurancecontract but which paragraph 7(h) of IFRS 17 excludes fromthe scope of IFRS 17.