What is IFRS 9 and what should you know about it? You will read more in this article!
IFRS 9 is an International Financial Reporting Standard (IFRS) released by the International Accounting Standards Board (IASB). It talks about accounting for financial instruments. The goal of the International Financial Reporting Standards (IFRS) is to make financial statements of publicly traded corporations consistent, transparent, and simple to compare across national boundaries. They were developed in order to produce a universally recognized accounting language that interested parties, including investors, auditors, government regulators, and others, could all understand.
There are three key subjects covered in it: hedge accounting, financial asset impairment, and classification and measurement of financial instruments. The IASB replaced IAS 39 Financial Instruments: Recognition and Measurement with IFRS 9 Financial Instruments, which was released on July 24, 2014. The Standard specifies standards for recognition and measurement, impairment, derecognition, and general hedge accounting. The IASB finished its initiative to replace IAS 39 in stages, adding to the standard as it went.
IFRS 9 outlines the classification and measurement requirements for financial assets, financial liabilities, and some contracts to purchase or sell non-financial goods.
For users of financial statements to make an accurate assessment of the quantities, timing, and uncertainty of the entity’s future cash flows, IFRS 9 aims to provide guidelines for how financial assets and liabilities are reported.
Classification And Measurement of Financial Assets
All financial assets now covered by IAS 39 are split into two categories under IFRS 9: those measured at amortized cost and those calculated at fair value. The modified IFRS 9 classification and measurement scheme for financial assets following initial recognition are:
- Loans and receivables which fall under amortized cost
- Fair Value Through Profit and Loss
- Fair Value in Other Comprehensive Income
For the amortized cost, the asset is valued at the amount recognized at initial recognition minus principal repayments, plus or minus the cumulative amortization of any difference between that initial and the maturity amount and any loss allowance. Using the effective interest approach, interest income is determined in profit and loss, and is acknowledged. Fair value fluctuation is accounted for in profit and loss after the asset is de-recognized or reclassified. Fair Value in Other Comprehensive Income is measured at fair value for loans and receivables and investments in equity instruments. In cases when the fair value option is used, the FVTOCI classification for debt instruments is required for some assets. The FVTOCI categorization is an option for equity investments, though. Fair Value Through Profit and Loss asset is measured at fair value and the changes in the fair value are recognized in profit and loss as they arise.
Knowing More About IFRS 9 From Annual Reporting
Annual reporting is a website that has a vast knowledge base for IFRS Reporting. It has the actual standards issued by the International Accounting Standards Board (IASB). The website guides readers about accounting fundamentals. There are different chapters on different IFRS topics arranged alphabetically which makes it easy for users to access them. If you would like more information, please read on their website: annualreporting.info.
