Prepayment Features with Negative Compensation (Amend IFRS 9)

BACKGROUND

The Accounting Standards Board (AcSB) is participating in the International Accounting Standards Board’s (IASB) project to amend International Financial Reporting Standard (IFRS) 9 Financial Instruments.

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The objective of this project is to examine whether amortized cost measurement would provide relevant and useful information for instruments that contain prepayment features with negative compensation and otherwise have contractual cash flows that are solely payment of principal and interest (SPPI).

The AcSB’s due process includes ensuring that Canadian entities’ financial reporting needs are considered by the IASB and issuing the AcSB’s own exposure draft on each IASB proposal. Subject to the responses to the AcSB’s exposure draft on whether the IASB’s proposals are appropriate for application in Canada, the AcSB expects that the amendments will be incorporated into Canadian GAAP in accordance with the AcSB’s strategy of adopting IFRSs for publicly accountable enterprises.

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PROJECT NEWS

Final Amendments – Prepayment Features with Negative Compensation (Amendments to IFRS 9)
October 19, 2017. The International Accounting Standards Board (IASB) has issued narrow-scope amendments to IFRS 9 Financial Instruments clarifying the accounting for financial assets with prepayment features that may result in negative compensation. The amendments are effective for annual periods beginning on or after January 1, 2019 with earlier application permitted. The IASB has also amended the Basis for Conclusions for IFRS 9 to confirm the accounting for modifications or exchanges of financial liabilities measured at amortized cost that do not result in derecognition.

AcSB Response – Prepayment Features with Negative Compensation (Proposed amendments to IFRS 9)
On May 24, 2017, the AcSB submitted a comment letter responding to the IASB’s Exposure Draft issued in April 2017. The letter supports the proposals to permit amortized cost measurement for instruments that contain prepayment features with negative compensation and otherwise have contractual cash flows that are solely payment of principal and interest. However, the letter expresses concerns over the timing of the amendments and the potential implications the amendments could have beyond prepayment features with negative compensation. Read the AcSB letter posted by the IASB.

AcSB Decision Summary – May 16, 2017
The Board reviewed and approved its response letter to the IASB’s Exposure Draft, “Prepayment Features with Negative Compensation (Proposed Amendments to IFRS 9),” subject to drafting changes.

The Board committed to asking the IASB for its cooperation so the Board can endorse and incorporate the final amendment issued by the IASB into the CPA Canada Handbook – Accounting by November 1, 2017.

AcSB Exposure Draft – Prepayment Features with Negative Compensation (Proposed amendments to IFRS 9).
April 21, 2017. The AcSB has issued an Exposure Draft that corresponds to the IASB’s Exposure Draft on this topic.  Stakeholders are encouraged to submit their comments by May 24, 2017.

IASB Exposure Draft – Prepayment Features with Negative Compensation (Proposed Amendments to IFRS 9)
 April 21, 2017. The IASB has issued an Exposure Draft proposing an amendment to IFRS 9 Financial Instruments. Canadian stakeholders are encouraged to submit their comments to the IASB by May 24, 2017.

AcSB Decision Summary – March 21-22, 2017
The AcSB decided on a 30-day comment period for the AcSB’s exposure draft corresponding to the forthcoming IASB’s exposure draft on the same topic. The AcSB expects to issue its wraparound exposure draft when the IASB issues its exposure draft in late April 2017.

 

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.