IFRS 9

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The International Accounting Standards Board (IASB), issued IFRS 9 Financial Instruments in November 2009.

IFRS 9 prescribes the classification and measurement of financial assets and completes the first phase of the project to replace IAS 39 Financial Instruments: Recognition and Measurement.

The initial classification requirements in IFRS 9 provide the foundation on which the reporting of financial assets is based, including how they are measured and presented in each reporting period.

The scope of IFRS 9 has been limited to financial assets. It does not change the classification and measurement requirements of financial liabilities that are set out in IAS 39. In the near future, we intend to consider further the accounting for financial liabilities.

The second and third phases of the project to replace IAS 39, now in progress, are concerned with the impairment of financial instruments and hedge accounting. We are also continuing our work on the derecognition of financial instruments, fair value measurement as well as consolidation.

The objective of this part of the project to replace IAS 39 has been to make it easier for users of fi nancial statements to assess the amounts, timing and uncertainty of cash flows arising from fi nancial assets.

IFRS 9 achieves this objective by aligning the measurement of financial assets with the way the entity manages its financial assets (its ‘business model’) and with their contractual cash flow characteristics.

As a consequence the IASB has reduced the complexity associated with IAS 39 in the following manner:

  • the number of classification and measurement categories has been reduced and there is a clearer rationale for the new categories;
  • the complex and rule-based requirements in IAS 39 for embedded derivatives have been eliminated by no longer requiring that embedded derivatives be separated from fi nancial asset host contracts;
  • the ‘tainting rules’ that forced entities to reclassify to fair value all instruments in a class that had been classifi ed as held to maturity in the event that one of those instruments is sold have been eliminated; and
  • there is a single impairment method for all financial assets not measured at fair value, and impairment reversals are permitted for all assets, eliminating the many different impairment methods used by IAS 39 and its inconsistent requirements on impairment reversal.

Bank assets book-keeping valuation rule simplified

Pricing bank assets may prove less of a rollercoaster ride in future crises after a global standard setter revised a key accounting rule on Thursday after calls from world leaders to curb credit crunch fallout.

The International Accounting Standards Board (IASB) sets book keeping rules used in over 100 countries and has simplified how companies classify and measure assets on their books.

The G20 group of leading countries agreed in April that major standard setters should simplify the “fair value” or mark to market accounting rule by the end of this year, specifically to help banks and insurers which are most affected by the rule.

This will allow the financial sector to apply it in their 2009 annual reports being drawn up over coming weeks.

Policymakers hope banks and insurers will end up valuing fewer assets at the going rate and instead value them at cost, a more stable reference over time.

The slump in some assets during the credit crunch forced banks to make huge writedowns to reflect depressed values of instruments valued at the going rate, sparking the need to raise fresh regulatory capital at a time of market turmoil.

“We have delivered on our commitment to the G20 and stakeholders internationally to provide an improved financial instrument standard for the classification and measurement of financial assets for use in 2009,” IASB Chairman, David Tweedie, said in a statement.

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