Issued: in 2009; followed by amendments
Effective date: 1 January 2018
IFRS 9 replaced IAS 39 Financial Instruments: Recognition and Measurement.
What IFRS 9 (International Financial Reporting Standards Nine) does
It prescribes the rules for recognition, measurement (including impairment), derecognition of financial instruments and hedge accounting.
It classifies financial assets into 2 categories:
Financial assets measured at amortized cost;
Financial assets measured at fair value. This category has 2 subcategories:
Financial assets measured at fair value through profit or loss;
Financial assets measured at fair value through other comprehensive income.
The classification of financial assets is performed based on two tests:
- Business model test; and
- Contractual cash flow characteristics test.
Financial instruments held to maturity with clear repayment dates on principal and interest meet the Solely Payment of Principal and Interest and therefore classified at Amortised Cost.
Some Financial Institutions hold financial instruments for some time and sell them off. Such financial instruments are classified as Fair Value where the gain or loss is recognized in the profit or loss.
IFRS 9 classifies financial liabilities into 2 categories:
Financial liabilities at amortized cost; and
Financial liabilities at fair value through profit or loss; with 2 subcategories:
Held for trading;
Designated at Fair Value Through Profit or Loss upon initial recognition.
IFRS 9 describes requirements for subsequent measurement and accounting treatment for each category of financial instruments.
It presents the rules for derecognition of financial instruments, with focus on financial assets. It contains the derecognition decision tree to assist in assessment of derecognition criteria.
It contains the requirements related to impairment of financial assets. It describes the expected credit loss and both general and simplified approach to implementation of expected credit loss model.
It deals with identification and accounting for embedded derivatives.
It contains the guidance on hedge accounting. It specifies the accounting treatment for 3 types of hedge relationships:
Cash flow hedge;
Fair value hedge;
Hedge of a net investment in a foreign operation.
It contains appendices with definitions and application guidance.