FYI Article – IFRS 9: Finally … Much-needed Improvements to the Financial Instruments Standard

March 2015

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

Final Standard

The International Accounting Standards Board (IASB) issued the final version of the standard in July 2014. The financial instruments project was completed in stages with the publication of the final version of the standard bringing together its various phases.  The standard replaces earlier versions of IFRS 9, including classification and measurement (issued in 2009 and 2010) and hedge accounting (issued in 2013) and completes the IASB’s project to replace IAS 39 Financial Instruments: Recognition and Measurement.  An entity is permitted to apply an earlier version of IFRS 9 if, and only if, the date of initial application of the earlier version is before February 1, 2015.

Enhances Investor Confidence

IFRS 9 is the IASB’s “comprehensive response to the financial crisis” with the objective of improving the usefulness of financial statements for users.  IFRS 9:

  • simplifies the classification and measurement of financial assets to better reflect the way they are managed and their cash flows;
  • introduces a single forward-looking impairment model for expected credit losses,  allowing for a more timely recognition of loan losses and applicable to all financial assets subject to impairment accounting; and
  • changes hedge accounting with a significantly improved model that better links the economics of risk management with the accounting treatment.

How Does this Affect Your Financial Reporting?

The adoption of IFRS 9 will impact all entities to varying degrees depending on the nature of their business activities and types of their financial instruments.  Some entities may need to consider whether their current systems and processes generate sufficient information to apply the new impairment model and the new classification and measurement model.  Other entities may need to consider if hedging activities qualify for hedge accounting under the new standard.  Finally, all entities will need to consider the amendments to IFRS 7 Financial Instrument: Disclosures and update their financial statements accordingly.

Contact:

Andrew White, CPA, CA
Principal, Accounting Standards Board
Phone: +1 (416) 204-3487
Email: awhite@cpacanada.ca