Financial Instruments – Classification and Measurement

BACKGROUND

The Accounting Standards Board (AcSB) is participating in the first phase of the International Accounting Standards Board’s (IASB) multi-phased project, IFRS 9: Financial Instruments (replacement of IAS 39), to improve the usefulness of financial statements for users by simplifying the classification and measurement requirements for financial instruments.

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The objective of the first phase is to reduce complexity and improve comparability by limiting the number of categories into which financial assets and financial liabilities may be classified.

The AcSB participates in the consultations and activities on this project to ensure that Canadian entities’ financial reporting needs are considered by the IASB. The AcSB plans to incorporate the final new standard into Part I of the Handbook in accordance with its strategy of adopting International Financial Reporting Standards (IFRSs) for publicly accountable enterprises.

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PROJECT NEWS

Final Standard – Financial Instruments
February 5, 2015. Final IFRS 9 Financial Instruments has been incorporated into Part I of the CPA Canada Handbook – Accounting. The standard is effective for annual periods beginning on or after January 1, 2018 with earlier application permitted.

AcSB Response – OSFI Draft Advisory: Early Adoption of IFRS 9 Financial Instruments for Federally Regulated Entities with October Year-ends
November 14, 2014. The AcSB has responded to the Office of Superintendent of Financial Institutions’ Draft Advisory. The letter expresses concerns about OSFI’s proposal and notes that the AcSB concerns itself with the quality of Canadian entities’ implementation of new IFRSs given the interpretation risk and the associated implementation costs. 

AcSB Decision Summary – November 5-6, 2014 
The AcSB discussed the Office of the Superintendent of Financial Institutions of Canada’s draft advisory regarding early adoption of IFRS 9 for federally regulated entities with October year ends. The AcSB decided to submit a comment letter on this topic. The letter notes that the AcSB concerns itself with the quality of Canadian entities’ implementation of new IFRSs, in particular standards as complex as IFRS 9, given the interpretation risk and the associated implementation costs.

Final Standard – Financial Instruments
July 28, 2014. The IASB has issued a complete and revised IFRS 9.The improvements introduced by IFRS 9 include a logical model for classification and measurement, a single, forward-looking expected loss impairment model and a reformed approach to hedge accounting. IFRS 9 is effective for annual periods beginning on or after January 1, 2018 with earlier application permitted.

Final Amendments – Hedge Accounting
November 22, 2013. The IASB has issued IFRS 9 Financial Instruments (Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39). The amendments introduce a new hedge accounting model, allow IFRS 9’s “own credit” requirements to be applied in isolation, and temporarily remove its mandatory effective date while making it available for application.

IASB Survey – Classification and Measurement of Financial Assets
May 14, 2013.  Analysts and investors are asked to provide input to the IASB on accounting for loan assets and debt securities held.  Responses to the survey are due by May 31, 2013.

AcSB Response – Classification and Measurement: Limited Amendments to IFRS 9
On March 28, 2013, the AcSB submitted a comment letter responding to the IASB's Exposure Draft issued in November 2012. The letter supports the proposed clarification that financial assets with the characteristics described as a "modified economic relationship" can be instruments with contractual cash flows that are solely payments of principal and interest. The letter also agrees with the proposed fair-value-through-other-comprehensive-income category and the proposed amendments to the transition provisions. The letter requests that the mandatory effective date of IFRS 9 be postponed to allow three complete years after the final standard is published. Read the AcSB letter posted by the IASB.

AcSB Decision Summary – March 19-20, 2013
The AcSB discussed the points to be included in its response letter to the IASB Exposure Draft, “Classification and Measurement: Limited Amendments to IFRS 9.”

AcSB Decision Summary – February 13, 2013
The AcSB discussed the issues to be addressed in its response to the IASB’s Exposure Draft on “Classification and Measurement: Limited Amendments to IFRS 9.”  No decisions were made.

AcSB Exposure Draft – Classification and Measurement: Limited Amendments to IFRS 9 (Proposed amendments to IFRS 9 (2010))
February 11, 2013. The AcSB has issued an Exposure Draft that corresponds to the IASB’s Exposure Draft on this topic. Canadian stakeholders are encouraged to submit their comments, on the form provided, by March 28, 2013.

IASB Exposure Draft – Classification and Measurement: Limited Amendments to IFRS 9 (Proposed amendments to IFRS 9 (2010))
December 3, 2012. The IASB has issued an Exposure Draft proposing amendments to IFRS 9 Financial Instruments. The comment deadline is March 28, 2013.

AcSB Decision Summary – March 20-21, 2012
The AcSB approved the incorporation of Mandatory Effective Date and Transition Disclosures, amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures, recently issued by the IASB, into Part I of the CICA Handbook – Accounting.

Mandatory Effective Date of IFRS 9
December 20, 2011. The IASB has issued amendments to IFRS 9 Financial Instruments that defer the mandatory effective date from January 1, 2013 to January 1, 2015. The amendments also provide relief from the requirement to restate comparative financial statements for the effect of applying IFRS 9.

AcSB Response – Mandatory Effective Date of IFRS 9
On October 21, 2011, the AcSB submitted a comment letter responding to the IASB’s Exposure Draft issued in August 2011. The letter supports the proposal to delay the mandatory effective date of IFRS 9 Financial Instruments but only on completion of all components of IFRS 9 following full due process and publication of the final standard before December 31, 2012. If IFRS 9 cannot be completed by the end of 2012, the letter recommends further delaying the effective date by at least two full calendar years. The AcSB letter posted by the IASB is available here.

AcSB Decision Summary – October 12, 2011
The AcSB agreed on the content of its response to the IASB’s Exposure Draft, “Financial Instruments — Mandatory Effective Date of IFRS 9”.

Exposure Draft – Mandatory Effective Date of IFRS 9
August 29, 2011. The AcSB has issued an Exposure Draft that corresponds to the IASB’s Exposure Draft on this topic. Comments, on the form provided, are requested by October 21, 2011.

Exposure Draft – Financial Instruments: Classification and Measurement
August 9, 2011. The IASB has issued an Exposure Draft proposing to adjust the mandatory effective date of IFRS 9 Financial Instruments from January 1, 2013 to January 1, 2015. The comment deadline is October 21, 2011.

AcSB Decision Summary – December 15, 2010
The AcSB approved the incorporation of IFRS 9 Financial Instruments, as amended by the IASB in October 2010, concerning financial liabilities, into Part I of the Handbook.

Amended Standard – Financial Instruments
October 29, 2010. The IASB has issued amendments that add requirements to IFRS 9 Financial Instruments for classifying and measuring financial liabilities. The new requirements complete the classification and measurement phase of the IASB’s project on this topic.

AcSB Decision Summary – September 7-8, 2010
The AcSB approved a comment letter to the US Financial Accounting Standards Board (FASB) on its Exposure Draft, “Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities.” 

AcSB Decision Summary – July 14, 2010
The AcSB discussed the development of a response to the FASB Exposure Draft, "Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities". No decisions were made.

AcSB Staff Response – Fair Value Option for Financial Liabilities
On July 16, 2010, AcSB staff submitted a comment letter responding to the IASB’s Exposure Draft. The letter does not support the IASB’s proposal because the IASB and FASB proposals in this area are not converged. As well, the proposal requires the increased use of other comprehensive income without articulating a principle that distinguishes between items to be recognized in net income and those to be recognized in other comprehensive income. The AcSB staff letter posted by the IASB is available here.

AcSB Decision Summary – June 16, 2010
The AcSB directed the staff to develop a response to the IASB Exposure Draft, “Fair Value Option for Financial Liabilities.” The AcSB agrees that most financial liabilities should be measured at amortized cost.  It is concerned with the following aspects of the proposal:

  • The possible diversity of approaches to measuring the component of the change in fair value of a financial liability that would be recognized in other comprehensive income.
  • The inconsistency in use of other comprehensive income that would result from not requiring recycling of a gain or loss on early settlement of a financial liability.

The AcSB also decided to respond to the FASB’s Invitation to Comment in its May 26, 2010 Exposure Draft, “Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities.”

Exposure Draft – Fair Value Option for Financial Liabilities
June 14, 2010. The AcSB has issued an Exposure Draft (ED) that corresponds to the IASB’s ED on this topic. Comments, on the form provided, are requested by July 16, 2010.

Exposure Draft – Financial Instruments 
May 28, 2010. The IASB is asking constituents to comment on the FASB’s proposals for a new comprehensive standard on financial instruments. A comparison between the IASB’s and the FASB’s respective approached is provided in the FASB Exposure Draft. The comment deadline is September 30, 2010.

Questionnaire – Fair Value Option for Financial Liabilities
May 27, 2010. The IASB has issued a questionnaire for financial statement users seeking input on the captioned topic. Responses to the survey are due by July 16, 2010.

Exposure Draft – Fair Value Option for Financial Liabilities
May 14, 2010. The IASB has issued an Exposure Draft proposing that when financial liabilities are measured using the fair value option any changes in the credit risk of the liability will not cause volatility in profit or loss. The comment deadline is July 16, 2010.

AcSB Decision Summary – April 9, 2010
The AcSB agreed to issue exposure drafts on measurement of financial liabilities and hedge accounting when issued by the IASB. These documents are expected to be issued during the second quarter of 2010.

AcSB Decision Summary – December 10, 2009
The AcSB reviewed comment letters received in response to its July 2009 Exposure Draft, “Financial Instruments: Classification and Measurement,” as well as responses submitted by Canadians to the IASB on its Exposure Draft of the same name. The AcSB approved the addition of IFRS 9 Financial Instruments to Part I of the CICA Handbook – Accounting. IFRS 9 applies to the classification and measurement of financial assets and is mandatory for years beginning on or after January 1, 2013. Earlier application is permitted. IFRS 9 will be included in the first update to Part I, at the end of the first quarter of 2010.

New Standard – Financial Instruments
November 13, 2009. The IASB has issued a new standard IFRS 9 Financial Instruments that replaces the classification and measurement of financial assets in IAS 39 Financial Instruments: Recognition and Measurement.

AcSB Decision Summary – October 14, 2009
The AcSB received an update on the IASB project to replace IAS 39 Financial Instruments: Recognition and Measurement.

AcSB Response – Financial Instruments: Classification and Measurement
On September 14, 2009, the AcSB submitted a comment letter responding to the IASB’s Exposure Draft. The letter expresses concern that the speed with which the project is progressing and the apparent lack of co-ordination with the FASB will not result in the best possible standards for financial instruments. The letter also recommends that the IASB combine the three phases of the IAS 39 replacement project (classification and measurement, impairment and hedge accounting) and develop a comprehensive exposure document. The AcSB letter posted by the IASB is available here.

AcSB Staff Response – Credit Risk in Liability Measurement
On September 4, 2009, AcSB staff submitted a comment letter responding to the
IASB’s Discussion Paper. The letter supports that fair value measurement of liabilities should include the market’s best estimate of credit risk at a particular point in time. However, the letter expresses concern that there are varied views among financial statement users, academics and staff as to whether there are circumstances in which liabilities should be measured at current measures that exclude the effects of the entity’s credit standing. The AcSB staff letter posted by the IASB is available here.

Exposure Draft – Financial Instruments: Classification and Measurement
August 14, 2009. The AcSB has issued an Exposure Draft on the IASB’s proposed new standard for classification and measurement of financial instruments. The new standard will apply to publicly accountable enterprises on changeover to IFRSs. Comments are requested by September 30, 2009.

Exposure Draft – Financial Instruments : Classification and Measurement
July 17, 2009. The IASB has issued an Exposure Draft proposing changes to classification and measurement as part of the comprehensive project on financial instruments. The comment deadline is September 14, 2009. The AcSB will issue a corresponding exposure draft.

AcSB Decision Summary – July 16, 2009
The AcSB discussed the recently published IASB Exposure Draft, “Financial Instruments: Classification and Measurement." This document proposes a new standard that would replace some of the requirements of IAS 39, Financial Instruments: Recognition and Measurement. It is the first of three Exposure Drafts the IASB intends to publish before the end of 2009 that would ultimately result in a complete replacement of IAS 39. The IASB comment deadline on this Exposure Draft is September 14, 2009. The IASB intends to make the proposed requirements on classification and measurement available for implementation for December 2009 year-ends. The standard resulting from this Exposure Draft, as well as related new standards on impairment of financial assets and hedge accounting, is not expected to be mandatory before January 1, 2012. Canadian entities are expected to be able to adopt the entire set of new requirements on transition to IFRSs. 

The AcSB will issue the Exposure Draft for comment but does not intend to incorporate the resulting standard into existing Canadian accounting requirements. The AcSB is concerned that it will be difficult to assess fully the implications of the Exposure Draft’s proposals without the proposals on impairment of financial assets and hedge accounting. The AcSB will continue to monitor the IASB’s deliberations and the effect of new proposals on Canadian entities’ transition to IFRSs.

The AcSB also decided on plans to respond to the IASB Exposure Draft.

Discussion Paper – Credit Risk in Liability Measurement
June 26, 2009. The IASB has issued a Discussion Paper on the role of credit risk in liability measurement. The comment deadline is September 1, 2009.

AcSB Staff Response – Reducing complexity in Reporting Financial Instruments
September 19, 2008. The AcSB staff has submitted a letter commenting on the IASB's discussion paper.

Discussion Paper – Reducing Complexity in Reporting Financial Instruments
April 16, 2008 The IASB has issued a Discussion Paper on “Reducing Complexity in Reporting Financial Instruments.” The paper examines the main causes for the complexity under IFRSs today and proposes possible intermediate and long-term approaches to improve and simplify measurement. The comment deadline is September 19, 2008.

 

Disclaimer: This project summary has been prepared for information purposes only. Decisions reported are tentative and reflect only the current status of discussions on this project, which may change after further Board deliberations. Decisions to publish Handbook material are final only after a formal ballot process.