IFRS 9 Financial Instruments
IFRS 9 is the international standard for the recognition and measurement of financial instruments. It became effective for annual periods beginning on or after January 1, 2018, and replaced IAS 39.
Related Standards
Explanation
IFRS 9 has three main parts:
• Classification and measurement: financial assets are measured at amortized cost, at fair value through other comprehensive income, or at fair value through profit or loss, depending on the business model and cash flow characteristics.
• Impairment: an expected credit loss model replaces the earlier incurred loss model. A simplified approach based on lifetime expected credit losses is required for trade receivables and contract assets without a significant financing component, and is available as a policy choice for those with a significant financing component and for lease receivables.
• Hedge accounting: rules for reflecting risk management activities in the financial statements.
Assets measured at amortized cost use the effective interest method.
Why It Matters
Receivables and contract assets from revenue contracts, as well as lessors' lease receivables, are subject to IFRS 9 impairment. Expected credit loss calculations require reliable balances by customer, contract, and aging. The US GAAP counterpart for credit losses is ASC 326.
Related Terms
IFRS 7 · ASC 326 Credit Losses · Contract Asset · Effective Interest Method · Net Investment in the Lease
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