Page 4 - Bramasol_eBook-Overview of IFRS 9

IFRS 9’s new model for classifying and measuring financial assets after initial recognition:

Loans and receivables
“Basic” loans and receivables where the objective of the entity’s business model
for realizing these assets is either:

› Collecting contractual cash flows; or Athorized Cost
› Both collecting contractual cash flows and selling these assets FVOCI
FVPL
All other loans and receivables.

Mandatorily redeemable preferred shares and “puttable” instruments
(e.g., investments in mutual fund units) FVPL

Freestanding derivative financial assets
(e.g., purchased options, forwards and swaps with a positive fair FVPL value at the FVPL
balance sheet date)

Investments in equity instruments
Entity irrevocably elects at initial recognition to recognize only dividend income
on a qualifying investment in profit and loss, with no recycling of changes in fair
value accumulated in equity through OCI. FVOCI
Other FVPL

Note: FVPL may be used if an asset qualifies for FVOCI or Amortized Cost to avoid an accounting mismatch.

IFRS 9 classification and measurement

Classification determines how financial assets and financial liabilities are accounted for in financial statements and, in
particular, how they are measured on an ongoing basis. IFRS 9 introduces a logical approach for the classification of
financial assets, which is driven by cash flow characteristics and the business model in which an asset is held.

This single, principle-based approach replaces existing rule-based requirements that are considered to be overly
complex and difficult to apply. The new model also results in a single impairment model being applied to all financial
instruments, thereby removing a source of complexity associated with previous accounting requirements.

IFRS 9 impairment

During the financial crisis, the delayed recognition of credit losses on loans (and other financial instruments) was
identified as a weakness in existing accounting standards. As part of IFRS 9, the IASB has introduced a new, expected-
loss impairment model that will require more timely recognition of expected credit losses ( “ECL”). Specifically, the new
standard requires entities to account for expected credit losses from the moment when financial instruments are first
identified. IFRS 9 acknowledges the full lifetime expected losses on a timelier basis.

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